Quiz | May 2009

Lighten Your Financial Load

Are you making mountains out of mole hills when it comes to managing your finances?

There's no need to sweat over day-to-day tasks or long-term planning. Take a deep breath ... and take our ten-question quiz to see how easy it is to simplify your financial life.

Quiz

Lighten Your Financial Load

Question 1 of 10

Which investment will likely cause you the fewest headaches?

A. Commodities futures
B. Index funds
C. Penny stocks

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Quiz

Lighten Your Financial Load

Question 1 of 10

Which investment will likely cause you the fewest headaches?

You're right! B. Index funds is correct.

Sorry, wrong! is incorrect.

The right answer is B. Index funds.

Index funds, which are designed to replicate an index of stocks or bonds, are low-stress because you don't have to worry about your fund manager making any boneheaded bets. They're as close as you'll come to a guarantee of at least average returns.

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Lighten Your Financial Load

Question 2 of 10

How much should you expect to fork over for an automatic bill-paying service?

A. $0 per month
B. $25 per month
C. $50 per month

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Lighten Your Financial Load

Question 2 of 10

How much should you expect to fork over for an automatic bill-paying service?

You're right! A. $0 per month is correct.

Sorry, wrong! is incorrect.

The right answer is A. $0 per month.

Putting your bills on autopilot is free, in most cases. The service saves time and ensures that payments are never missed. You can arrange for automatic bill-pay directly with each biller, such as your mortgage, credit card and utility providers. Some banks also offer free bill-paying services to some customers, while others may charge for it. Ask before you sign up.

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Lighten Your Financial Load

Question 3 of 10

Target-date mutual funds are designed to be the only investment you own.

A. True
B. False

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Lighten Your Financial Load

Question 3 of 10

Target-date mutual funds are designed to be the only investment you own.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

With one-stop shopping, a target-date fund can be a good way to simplify your investments. It's a diversified mutual fund that handles asset allocation and rebalancing for you. Plus, it automatically increases its stake in bonds -- toning down your risk -- as it nears the target date. We like T. Rowe Price's line of target funds.

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Lighten Your Financial Load

Question 4 of 10

What is an ETF?

A. Exchange-traded fund
B. Elderly tax-free fund
C. Exempt trust fund
D. Extra terrestrial fund

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Lighten Your Financial Load

Question 4 of 10

What is an ETF?

You're right! A. Exchange-traded fund is correct.

Sorry, wrong! is incorrect.

The right answer is A. Exchange-traded fund.

Exchange-traded funds are mutual funds that you buy and sell like stocks. Many ETFs are index funds, tracking a broad market average, making them the simple choice for people who don't want to spend a lot of time -- or stress -- on picking stocks. Plus, they're a snap to buy and sell, and they typically carry lower fees than the comparable index funds. For an easy stock portfolio, put 75% of your money in Vanguard Total Stock Market ETF (VTI) and 25% in Vanguard FTSE All-World Ex-US ETF (VEU).

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Lighten Your Financial Load

Question 5 of 10

Transferring your credit card balances to a card with the lowest rate can simplify your finances -- and save you a lot of money. What should you do with your old cards once they're not in use?

A. Cancel them
B. Hold on to them

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Lighten Your Financial Load

Question 5 of 10

Transferring your credit card balances to a card with the lowest rate can simplify your finances -- and save you a lot of money. What should you do with your old cards once they're not in use?

You're right! B. Hold on to them is correct.

Sorry, wrong! is incorrect.

The right answer is B. Hold on to them.

Don't cancel the old cards -- that could lower your credit score. Instead, maintain the accounts by using them every six months or so and pay the balance immediately.

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Lighten Your Financial Load

Question 6 of 10

Which retirement account is simpler to use:

A. Roth IRA
B. Traditional IRA

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Lighten Your Financial Load

Question 6 of 10

Which retirement account is simpler to use:

You're right! A. Roth IRA is correct.

Sorry, wrong! is incorrect.

The right answer is A. Roth IRA.

A Roth IRA is the ultimate of simplicity. Because you contribute after-tax money, there's no deduction to document on your tax return each year, and you won't have to pay taxes later when you withdraw the money. Speaking of which, a traditional IRA requires you to start withdrawing the money at age 70 1/2, regardless of whether you need it. Roths have no mandatory distributions.

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Lighten Your Financial Load

Question 7 of 10

It's a good idea to hold on to old tax returns for your records. But how long do most people need to keep their supporting tax documents in case of an audit?

A. 1 year
B. 3 years
C. 7 years
D. Forever

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Lighten Your Financial Load

Question 7 of 10

It's a good idea to hold on to old tax returns for your records. But how long do most people need to keep their supporting tax documents in case of an audit?

You're right! B. 3 years is correct.

Sorry, wrong! is incorrect.

The right answer is B. 3 years.

You can ditch supporting tax documents after three years -- that's how long the IRS has to initiate an audit (six years if you’re self-employed).

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Quiz

Lighten Your Financial Load

Question 8 of 10

How much should you expect to pay for a financial adviser?

A. $25 to $50 an hour
B. $100 to $300 an hour
C. $500 to $800 an hour

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Lighten Your Financial Load

Question 8 of 10

How much should you expect to pay for a financial adviser?

You're right! B. $100 to $300 an hour is correct.

Sorry, wrong! is incorrect.

The right answer is B. $100 to $300 an hour.

A financial planner can help ease the burden of saving for retirement or college, or managing investments. For a fee-only adviser, expect to pay between $100 to $300 per hour.

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Quiz

Lighten Your Financial Load

Question 9 of 10

You've left your job. What should you do with money in a retirement savings account you had through your old employer?

A. Leave it there
B. Roll it into an IRA
C. Cash it out

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Quiz

Lighten Your Financial Load

Question 9 of 10

You've left your job. What should you do with money in a retirement savings account you had through your old employer?

You're right! B. Roll it into an IRA is correct.

Sorry, wrong! is incorrect.

The right answer is B. Roll it into an IRA.

Sure, it may seem easier to leave the money there right now. But in the long-run, you'll wish you had consolidated your retirement accounts for simplicity's sake, instead of having them scattered among old employers. Roll your old 401(k) into an IRA to give yourself control and to make it easier to keep track of your investments. And for heavens sake, don't cash out. You'll owe taxes on the money plus a 10% early-withdrawal penalty.

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Quiz

Lighten Your Financial Load

Question 10 of 10

Keeping a budget is a waste of time. You're better off without one.

A. True
B. False

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Quiz

Lighten Your Financial Load

Question 10 of 10

Keeping a budget is a waste of time. You're better off without one.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Budgeting certainly isn't effortless, but it's time well spent. When you know how much money you have and where it's going, you'll have an easier time saving money for the things you really want. And another perk: the peace of mind you get from feeling in control of your finances instead of the other way around.

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Quiz

Lighten Your Financial Load

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Quiz | May 2009

Lighten Your Financial Load

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