Investing Quiz 1. What percentage of actively managed mutual funds outperformed the Wilshire 5000, a broad measure of the U.S. stock market, in the 15 years ending in 2000? 17% 31% 43% 52% 60% 2. The best predictor of a stock mutual fund’s future performance is: Past returns Fund manager skill Reputation and stature of the mutual fund company Fund expenses When you invest 3. Legendary investor Warren Buffet, Chairman of Berkshire Hathaway said: “Everyone should own some gold to protect themselves from inflation, currency depreciation and surprise adverse financial events.” “The best way to own common stocks is through an index fund.” “Everyone should own stock of the company they work for.” “It is possible for the average investor to pick stocks better than some of the professionals do it.” “If you go with a good broker, and follow their stock picks carefully, you will do pretty well.” 4. A study showed that In the 20 years ending in 2008, the average stock market mutual fund returned 8.4% per year. The average stock investor’s annual return was lower due to poor timing of buying and selling decisions and averaged: 1.9% 3.9% 4.9% 5.9% 6.9% 5. Which of the following is true? (choose one) Passive managers, as opposed to active ones, do not buy and sell securities. They buy and hold a basket of securities and never have to change it. Passive managers invest in broad sectors of the market, called asset classes or indexes and accept average returns that the various asset classes produce. Mutual funds managed by active managers tend to have lower costs than those of passively managed funds. Active managers don’t expect to outperform their benchmark index. The data show that top performing active managers who do very well over very long time frames, e.g. at least 10 years, consistently do well over the subsequent ten years. 6. Which of the following is true according to a famous study by Brinson in 1986? (choose one) On average, pension funds have not been able to add value beyond the returns generated by a static market index via market timing or individual security selection. Active management has reduced portfolio returns and increased its volatility compared with a static indexed implementation of the portfolio’s asset allocation policy. Indexing outperforms a significant portion of active portfolios in equity and bond markets. Active strategies tend to have high skill hurdle, higher costs, and less stable and less predictable returns over time than passive ones. All of the Above 7. Which of the following is true: (choose one) The U.S. stock market comprises about 75% of the world’s stock market value. Adding uncorrelated assets to your investment portfolio can increase your returns while reducing your risk of loss. Emerging market stocks and bonds are risky and therefore should be avoided. U.S. and foreign governments have adopted monetary policies that “print money” and are designed to stimulate their economies. In the long run, this will likely bolster the value of their currencies and reduce the risk of inflation. All of the above 8. Which of the following is true: (choose one) Residential real estate on average has been a good investment, returning over 6% per year for the past 50 years. The only reason to invest in gold is if you are concerned about significant inflation. REITs, or Real Estate Investment Trusts have proven to be a good investment historically due to returns that are close to that of the stock market, while providing a diversification benefit to a multi-asset class portfolio. Hedge funds on average have been a top performing investment class, but are only available to high net worth, high income investors. All of the above 9. In choosing a specific investment for your portfolio, which of the following factors should not be an important one: (choose one) How the investment fits with your overall portfolio strategy The expenses of the investment Recommendations of your broker or a TV analyst Track record, liquidity, valuation and past performance Whether it is actively or passively managed For mutual funds – assets under management, management team qualifications and fund company reputation 10. Which of the following are typical investor mistakes (check all that apply): Buying assets that have poor historical performance Attempting to time the market Buying expensive mutual funds with high expense ratios Thinking too much about behavioral finance Chasing performance of recent winning assets or managers Managing your assets without worrying about taxes Using index funds as your primary core investment holdings Owning too much of their employer’s stock Loading … Question 1 of 10
