Kiss Your Broker Good-Bye Trivia Quiz

Answer: 30

The DJIA is a general barometer of market movement up or down. However, because it only includes 30 blue chip stocks, a broader sampling can be found in the Standard and Poor's 500 Index (S&P 500) or the Russell 2000 which includes smaller companies. The main value of these indices is in identifying trends.

Answer: Balanced fund

A balanced mutual fund holds both stocks AND bonds for balance. These funds are considered safe for the long term. A small cap fund looks for small companies with good ideas and sound business plans but investing in small companies can be risky. A sector fund invests in a single sector of the economy - technology, natural resources, telecommunications, etc. If that sector falls out of favor, your nest egg's going to take a hit. Finally, a gold fund usually invests in gold mining companies, gold bullion, coins and so on.

The price of gold fluctuates, sometimes quickly, and so gold funds are considered risky. Stick with a balanced fund for long-term security.

Answer: About 10%

The market averages about 10% a year which means one year it's up 20%, the next year it could be down 5%, up 15%, etc. The key to successful investing is to buy good and hold on for the long term and that 10% figure (a good return) will work in your favor.

Answer: A growth-oriented mutual fund

Mutual funds provide instant diversification because they hold many different stocks. A CD is the safest investment but it pays the lowest return. REITs invest in real estate holdings like office buildings and shopping malls so their share prices are tied to the state of real estate and there are often restrictions on when you can remove money from the fund. Finally, buying individual stocks puts "all your eggs in one basket". Mutual funds are the way to go for the long-term investor.

Answer: There is no advantage

A load is an up-front fee you pay to the mutual fund. Invest $1000 in a fund with a 4.5% front-end load and you're out $45 before you even start. Numerous studies have shown that funds that DON'T charge a load (no-load funds) perform just as well as load funds so always go with a no-load fund. Also, read the fine print.

Many funds impose back-end loads - fees you pay when you remove money.

Answer: Ignore it

Never take advice from anyone other than a qualified professional, and even then be aware that they can get things wrong too. Watch any financial show. For any talking head who says a stock is going up there's another pundit saying it's going to tank. When you buy a stock you're buying it from someone who thinks it's topped out. That's what makes a stock "market".

Answer: Index fund

Index funds hold the same stocks as the indices they track. An S&P 500 fund will hold the 500 stocks that make up the Standard & Poor's 500 Index. Because there's no buying and selling going on by the fund's management, expenses are very low. Watch out for funds that buy and sell (turn over) lots of stocks each year.

These funds pay brokerage fees, research fees, management fees and more - all of which comes right off the top of your earnings.

Answer: All of these

When investing, remember "risk versus reward" - the higher the risk the higher the *potential* reward. CDs, a low risk investment, pay a low rate of return. Junk bonds, a potentially high-risk investment, pay a higher return. Determine your risk tolerance - how much risk are you willing to take?
Your time horizon is how long before you'll need that money. Planning to buy a house in a couple of years? That's a short time horizon so your down payment should be conservatively invested. On the other hand, if you're investing for retirement 25 years hence, you can afford to take a bit more risk because you have time to recover from any losses.
Finally, consider the tax consequences to any investment. An IRA (Individual Retirement Account) allows your investment to grow tax free until you're over 70 years old. A great tax and investment advantage. Remember, most investment activities are "taxable events."

Answer: Quarterly

There are intra-day trends, short-term trends (3-9 months), long-term trends (9-24 months). Checking investments daily or weekly will drive the small investor nuts trying to keep track of the ups and downs. Most experts agree that a quick review of your quarterly statements from mutual fund groups, discount brokerages and banks will be sufficient for the long haul.

Answer: Initial public offering (IPO)

IPOs are issues of stock for companies just going public, that is companies new to the stock market. It's possible to make a killing on an IPO, but more often than not, the small investor gets burnt.
A value-oriented mutual fund buys fundamentally sound stocks currently out of market favor and holds them until they "turn around". Growth-oriented funds buy smaller companies with growth potential. And an index fund is an unmanaged collection of stocks designed to mirror the performance of one of the popular indices. BTW, only 1 in 4 managed mutual funds consistently beat the returns of unmanaged index funds. So much for the experts.

NOTE. Outside the US different terminology may be used for some types of investments, and different countries have different tax laws.