When faced with important financial decisions, you want to be sure you know the facts.
How confident are you about your money knowledge? Test yourself by taking our 8-question Personal Finance 301 quiz.
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1Asset allocation and diversification are two key tools investors can use to strike a balance between portfolio growth and risk. Which of the following is a general rule of thumb for periodic rebalancing to keep investments in line with your goals?
Answer B.Periodic rebalancing is important to keep a portfolio’s intended asset allocation on track. But it doesn’t have to be done every time the market moves. Checking in at set times during the year or when allocations move beyond their targets by, say, 5% should help keep investments aligned with your goals and risk tolerance.
To refresh your knowledge, read Personal Finance 301: Asset Allocation and Diversification
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2True or false? All reverse mortgages are federally insured.
Answer B.False. There are three main types of reverse mortgages, but not all of them are federally regulated. The most common type is the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Authority. But there are two other types of loans that are not federally protected. Proprietary reverse mortgages are offered by private lenders and single-purpose reverse mortgages are offered by government agencies at the state and local level.
To refresh your knowledge, read Personal Finance 301: Reverse Mortgages
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3True or false? HSAs allow you to pay medical bills with tax-free money.
Answer A.True. When paired with an eligible high-deductible health plan, HSA money can be used tax-free at any time to pay for qualified medical expenses, ranging from acupuncture and hearing aids to weight loss programs and x-rays. HSAs offer a triple tax benefit: Contributions aren’t taxed, they grow tax-deferred, and the money can be used tax-free for eligible medical expenses.
To refresh your knowledge, read Personal Finance 301: Health Savings Accounts
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4When looking for dependable financial advice, what’s the primary consideration that should drive your decision?
Answer A.Consider your financial goals to find the type of advice that fits your needs. Financial advisors range from automated “robo” programs to hands-on professionals who provide comprehensive planning and investment management. For example, say you just want some help choosing a good mix of persified mutual funds – and you don’t mind an online, hands-off approach. A robo advisor—or a hybrid robo—may suit you just fine. On the other hand, say you’re looking for specific advice on estate-planning options and additional retirement income strategies. You may want to enlist a traditional fiduciary financial professional to make sure your nest egg lasts.
To refresh your knowledge, read Personal Finance 301: Financial Advisors
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5The bucket strategy divides your savings into three buckets, based on a three-stage time horizon. Using this strategy, where would be the most likely spot to park top-quality stocks and alternative investments like commodities or real estate?
Answer A.If Bucket 1 is for cash and liquid investments that you’ll need in the next year or two and Bucket 2 is earmarked for reliable income you’ll likely need to tap in three to 10 years, the third bucket is meant for money you may need beyond that timeframe. Here, the focus is on growth, so this bucket will hold higher-growth, long-term investments.
To refresh your knowledge, read Personal Finance 301: Retirement Bucket System
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6What are some things you should consider when deciding how much life insurance coverage you need?
Answer A.Your specific needs will depend on personal circumstances, but all of these things should be considered when estimating your unique “number.” A basic calculation will include adding up the regular bills your family will have after you die, then subtracting any income they’ll continue to receive. Then, consider buying enough life insurance to fill the gap.
To refresh your knowledge, read Personal Finance 301: Life Insurance
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7Which of the following statements is false?
Answer A.Medicare will cover medically necessary care in short-term settings such as a hospital or doctor's office. And while Medicare will help pay for limited stays in nursing facilities, hospice care, or home health care under certain circumstances, it doesn't cover assistance with activities of daily living—which constitutes the bulk of long-term-care support and services.
To refresh your knowledge, read Personal Finance 301: Long-Term Care
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8Required minimum distributions (RMDs)—which are taxed as ordinary income—kick in after age 70½ for holders of traditional IRAs and 401(k)s. True or false: The percentage that the IRS requires you to withdraw each year goes up as you get older.
Answer A.It’s true; you’ll start out at about 3.65%, and that percentage goes up every year. At age 80, it’s 5.35%. At 90, it’s 8.77%.
To refresh your knowledge, read Personal Finance 301: Required Minimum Distributions
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Learn more with our Personal Finance 101 and Personal Finance 201 series.