answers to the 2017 investor iq test

Answers to the 2017 Investor IQ Test. by Natalie Pace.

January 15, 2017

1. What is the most important question you should ask your Certified Financial Advisor before hiring him/her?
   
   "How much of my portfolio should I keep safe?" This question will help you to determine whether you are dealing with a trusted professional who is looking after your best interest, or a salesman who is looking to make a quick buck. The answer to this question in the 9th year of a bull market is, "A percentage equal to your age for sure. But this deep in the bull run, we might consider overweighting even more safe."
   
   Get 12 questions and answers to help you interview your Certified Financial Planner candidates in Put Your Money Where Your Heart Is (aka You Vs. Wall Street in paperback), in the chapter "Brokers are Salesmen, Not Surgeons."
   
   
2. How much of your nest egg should you keep safe?
   
   A percentage equal to your age. Consider overweighting more safe when times look pretty perilous or a bull market is going into its 9th year (as is the case in 2017), and overweighting more at risk when the recession has reached its bottom. Analyzing the market works better than risk tolerance, and keeping enough safe is definitely better than losing more than half every eight years (the Buy and Hold, dollar cost averaging strategy).
   
   
3. What's safe?
   
   Bonds are vulnerable in today's Debt World. The main concern is credit risk, however in 2017, interest rate risk is also present. A well-known company could be drowning in debt and vulnerable to restructuring (i.e. you lose principal and yield) and still be borrowing in the 5% range. Most investors aren't aware that they are taking on such risk with such a low return. Don't reach for yield. Think, rather, "Capital Preservation" first, and then start learning about *safe, income-producing hard assets that you can purchase for a good price. In a world of debt, hard assets hold their value better than paper assets. If you have bonds, then examine the credit worthiness of every bond you own, and keep the terms short. Dump the duds.
   
   
4. What is the average return of stocks over the last 10 and 30 years?
   
   Large cap stocks earned 6.95% annualized over the last decade and 10.16% over the 30-year period. Small cap stocks were quite close to that performance at 7.63% and 11.33%, respectively.
   
   
5. What is the average return of gold over the last 10 and 30 years?
   
   Gold returned 5.27% annualized over the 10-year period and 3.49% over the last 30 years. While gold doesn’t look like much on paper, gold mining stocks doubled in 2016.
   
   
6. What is the average return of real estate over the last 10 and 30 years?
   
   Real estate prices are back to the highs seen before the Great Recession – meaning real estate is largely unaffordable in many areas, particularly for Millennials and the middle class. Real estate is flat over the last decade, with zero upside if you purchased in 2007. Over the 30-year period, real estate returned  5.80% annualized.
   
   
7. What was the top performing investment in 2016?
   
   Gold mining stocks were some of the best performers in 2016 (and these were two of the hot slices of our nest egg pie charts!). Many of the gold mining ETFs posted gains of 56% or more (doubling at one point). The Dow Jones Industrial Average also topped returns, posting increases of 13.4% on average. The buybacks – companies borrowing cheap money and buying back their own stock – continued at a breakneck pace – particularly in the older companies, many of which owe more than they are worth.
   
   
8. How long will it take for you to have a nest egg as big as your annual salary if you put 10% of your income into a tax-protected (and financial predator proof) individual retirement plan and invest in stocks and bonds*?
   
   7 years. Based upon 10% average annualized returns of stocks and bonds over a 30-year period, which is exactly what those assets have done from 1987-2016.
   
   
9. How long will it take for your nest egg to earn more than you earn, if you put 10% of your income into a tax-protected (and financial predator proof) individual retirement plan and invest in stocks and bonds*?
   
   25 years. Based upon 10% average annualized returns of stocks and bonds over a 30-year period, which is exactly what those assets have done from 1987-2016.
   
   
10. What’s the best investment strategy in a slow-growth, high-debt world?
    
    Hard assets hold their value better than paper assets when there is too much paper floating around. There are many safe, income producing hard assets that you can purchase for a great price in 2017! (We spend one full day at the Investor Educational Retreat focused on this.) While you definitely want to have liquid assets and a nest egg, since 2000, we've seen two recessions that were more like Depressions. During the Dot Com Recession, the NASDAQ lost 78% of its value, and it took 15 years to recover. The Dow Jones Industrial Average lost 55% during the Great Recession. If you're riding the Wall Street Rollercoaster with a Buy and Hold strategy, you're still underwater, and you’re as vulnerable today as you were in 2000 and 2008.
    
    
11. Which countries hold the most gold? 
    
    The United States is the top holder of gold worldwide, by far, with over 8,133 tons, followed by Germany, the International Monetary Fund, Italy, France, China  and Russia. China and Russia have been on a gold buying spree over the last two years. There are multiple reports that the U.S. banks and brokerages have been selling their client’s gold assets (sometimes without permission), which has kept gold prices very tepid, perhaps artificially so. Deutsche Bank settled a lawsuit, and agreed to name names of other banks, according to Bloomberg.
    
    
    
12. Are annuities safe?
    
    Insurance products, including life insurance and annuities, aren't covered by the FDIC. If we had not bailed out AIG in 2007, more than 50 million annuity holders would have been in real trouble. Your annuity product is only as safe as the insurance company that is selling it to you. That means you need to understand just how healthy the insurance company is before you have faith in the annuity. Billionaires, like Warren Buffett, got rich on selling life insurance. If they worked like everyone thinks they do, the companies couldn’t afford to be in business.
    
    
13. What is the 3-Ingredient Recipe for Cooking up Profits? 
    
    1. Start with what you know and love
    2. Pick the Leader
    3. Buy low; sell high (easy to say; hard to do)
    
    This recipe, along with my Stock Report Card, Four Questions, market strategies and data drilling are how I earned the ranking of number one stock picker. The recipe is easy. Learning to use it requires practice and learning the ropes from a master. Come to my Investor Educational Retreat to learn firsthand (from me) how easy and effective this strategy is, and why it has worked through bull and bear markets for more than a decade, while most strategies have bankrupted investors.
    
    
14. What are the Four Questions for Picking Winning Stocks?
    The Four Questions for Picking Winning Stocks.
    
    1. What’s the product?
    2. Who’s the customer?
    3.  Can the company continue to make superior product going forward and get it to their customer at the best price before the competition?
    4. Who’s the CEO and can s/he motivate the employees to make the best product faster, better and cheaper than the competition?
    
    As you can see, three out of four questions can be answered by being a good customer of the company, and the 3rd question can be answered by completing a Stock Report Card. So, the more you know about a company (ingredient #1 of the recipe for Cooking Up Profits), the easier it is to pick the leader.
    
    In You Vs. Wall Street, I used these questions and tools to compare two companies – one that became one of the most successful IPOs of all time (Google) and the other that went bankrupt (General Motors). FYI: I identified both of these trends years before they occurred by using the strategies outlined in You Vs. Wall Street. The book was written in 2006, three years before GM went bankrupt. 
    
    
15. What were the top performing and the worst months for stocks over the past five years? 
    
    February, March, July and October performed best over the 5-year period (in that order). August and January were negative months.
    
    
16. What was the top performing 3-month period for stocks over the past five years? 
    
    February, March and April with 5.926% gains over the 3-month period, on average. October, November and December saw cumulative monthly gains of 4.57%. I share 5, 10 and 20-year monthly performance charts at my investor education retreats.
    
    
17. What was the worst investment in 2016, NASDAQ, gold, the Dow Jones Industrial Average, bonds or real estate?
    
    Over the past few years, bonds have been the worst performers. If you held Greek, Detroit, Stockton, American Airlines, Hostess, or even oil bonds, you might have lost quite a lot of dough. Be sure that you are researching and investing in safer areas for the Capital Preservation side of your retirement plan.
    
    
18. Which year is expected to perform better, 2017 or 2018, based upon historical returns of election years?
    
    2017. The year after the election has been enjoying rock star performance, with average annual gains of 26.53% over the last decade. However, this is a post-election year that might do worse than the 10-year average, since we are headed into the 9th year of the current bull market. The last two times the U.S. stock market went 8 years without a correction, stocks lost more than half. GDP growth is predicted to be 2.2% in 2017. This is pretty slow, but better than a recession.
    
    
19. How many companies are in the Dow Jones Industrial Average?
    
    30 companies. Many are household brands. And many are carrying far more debt than the value of the company. Click to access the names of the 30 companies. The Dow Jones Industrial Average was launched in 1896.
    
    
20. How many Dow Jones Industrial Average companies were bailed out or went bankrupt in the Great Recession?
    
    Most don't realize that 20% of the companies of the Dow (6 companies: AIG, American Express, Bank of America, Citi, JP Morgan and General Motors) were bailed out or went bankrupt in the Great Recession. Others, like General Electric, received support. New Chips are far safer, and higher performing, than Blue Chips. Learn more about that at the Investor Educational Retreat and in The ABCs of Money.

 
*All highlighted phrases are explained in great detail at the Natalie Pace Investor Educational Retreats. Call 310-430-2397 or email [email protected] to learn now.

Data Sources:
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About Natalie Pace:
Natalie Pace is the author of the Amazon bestsellers The Gratitude Game, The ABCs of Money and You Vs. Wall Street (aka Put Your Money Where Your Heart Is in hard cover) and the co-creator of the Earth Gratitude project. The Earth Gratitude project features wisdom from the world’s most respected leaders, including The Dalai Lama, The Heir to The Throne of The United Kingdom, Elon Musk, The Duchess of Northumberland and the Earth Day Network. Natalie has been saving homes and nest eggs for two decades, while at the same time earning the ranking of No. 1 stock picker.  Natalie Pace is a blogger on HuffingtonPost.com and a repeat guest on national television and radio shows such as Good Morning America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer in giving back, she has been instrumental in raising tens of millions for public schools, financial literacy, the arts and underserved women and girls worldwide. Follow her on Twitter.com/NataliePace, and Facebook.com/TheABCsofMoney. For more information please visit NataliePace.com. Click to access a longer bio on Natalie Pace.
 
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