A recent issue of Financial Advisor magazine recounted a quiz that was given to 1,000 investors with annual household income of at least $75,000 and assets of at least $100,000. Nearly half failed the test.
Here are some of the questions. How well would you do?
- What does an index fund do?
- What happens to the value of bonds when interest rates go up?
- Which one leaves you richer:
- (A)saving $1,000 a year from age 35 to age 65 and earning an average 8% per year, or
- (B)saving $1,000 a year from age 25 to age 35 with the same return and then stopping?
For the answers, scroll down.
- An index fund is a mutual fund that has a portfolio that matches a broad based index. Examples are the Dow Jones Industrial Average or the Standard & Poor’s 500 index. That are many other indexes for small and mid-cap stocks, foreign stocks or bonds of various kinds.
- When interest rates go up the value of existing bonds goes down.
- The answer is (B). Beginning earlier makes all the difference. The person who started at 25 and stopped at 35 would be worth more than twice the amount at age 65 than the one who started at 35 and saved until 65.