Investing Fundamentals Quiz
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Questions and Answers

What is the primary reason that mutual funds are considered not tax efficient?

  • They invest only in government bonds.
  • They charge low fees for transactions.
  • They are exclusively held in tax-free accounts.
  • They pass on the tax burden to unit holders every year. (correct)
  • Which of the following statements is true about ETFs compared to mutual funds?

  • ETFs require higher management fees.
  • ETFs have more frequent capital gains.
  • ETFs are less liquid than mutual funds.
  • ETFs trade on stock exchanges. (correct)
  • Why do mutual funds tend to generate capital gains?

  • They are only vested in high-growth companies.
  • They always invest in foreign markets.
  • They provide fixed returns to unit holders.
  • They undergo high turnover as they buy and sell investments. (correct)
  • Which characteristic generally makes ETFs more tax efficient than mutual funds?

    <p>Low turnover rates in their investments.</p> Signup and view all the answers

    How do ETFs typically handle buying and selling of shares?

    <p>Shares are bought and sold primarily between investors.</p> Signup and view all the answers

    What aspect of mutual funds leads to additional fees for investors?

    <p>They charge loads and management fees.</p> Signup and view all the answers

    What is a key distinction between an ETF and a mutual fund?

    <p>ETFs allow for intra-day trading while mutual funds do not.</p> Signup and view all the answers

    What describes both ETFs and mutual funds in terms of investment?

    <p>They pool investors' money for diversified portfolios.</p> Signup and view all the answers

    What is the recommended maximum withdrawal rate if you want to leave your principal intact for heirs?

    <p>4%</p> Signup and view all the answers

    If you plan to retire at 65 and are currently 19, how many years do you have left to save?

    <p>46 years</p> Signup and view all the answers

    To be conservative in retirement planning, it may be advisable to assume which of the following?

    <p>Inflation rate is higher than 2.5%</p> Signup and view all the answers

    Which of the following strategies does NOT contribute to successfully preparing for retirement?

    <p>Ignoring tax changes</p> Signup and view all the answers

    What is the trade-off mentioned when deciding on withdrawal rates in retirement?

    <p>Short-term spending vs. long-term wealth</p> Signup and view all the answers

    What is considered the likely maximum safe withdrawal rate to avoid running out of money before death?

    <p>5% - 6%</p> Signup and view all the answers

    Which of the following is a common misconception about retirement plans?

    <p>Everyone can afford to retire comfortably right away</p> Signup and view all the answers

    What amount should you use for your average annual compound rate of return when being conservative?

    <p>6%</p> Signup and view all the answers

    What should an individual prioritize in retirement income planning when in the lowest federal tax bracket?

    <p>Use TFSA first</p> Signup and view all the answers

    At which income level does an individual transition to having the option to choose between TFSA and RRSP?

    <p>$55,868 - $111,732</p> Signup and view all the answers

    Which of the following statements is true regarding U.S. investments held in an RRSP?

    <p>They avoid any withholding taxes on dividends.</p> Signup and view all the answers

    What is a key disadvantage of U.S. ETFs when held in a TFSA?

    <p>They incur a 15% dividend withholding tax.</p> Signup and view all the answers

    What is a benefit of making contributions to an RRSP?

    <p>Receipt of a tax refund based on the deduction</p> Signup and view all the answers

    What is a significant advantage of buying ETFs in the USA?

    <p>Wider variety of available ETFs</p> Signup and view all the answers

    How do the reported returns of ETFs differ when compared to U.S. stocks directly?

    <p>One is reported in USD and the other is in CDN$.</p> Signup and view all the answers

    What financial strategy should one undertake with the tax refund received from an RRSP contribution?

    <p>Invest it wisely for future growth</p> Signup and view all the answers

    What is the most effective way to avoid 15% dividend withholding tax on U.S. stocks?

    <p>Hold U.S. ETFs on U.S. exchanges in an RRSP.</p> Signup and view all the answers

    Which type of fund is explicitly mentioned as an option for hedged investments?

    <p>Targeted Date Fund</p> Signup and view all the answers

    What is a disadvantage of investing in US ETFs?

    <p>Potential for 15% withholding tax on U.S. dividends</p> Signup and view all the answers

    When should individuals consider using RRSP before TFSA?

    <p>When their income enters the third tax bracket</p> Signup and view all the answers

    What is a notable characteristic of cryptocurrency compared to fiat currency?

    <p>Cryptocurrency is generated by computers.</p> Signup and view all the answers

    What benefit do U.S. ETFs have over those listed on Canadian exchanges?

    <p>Lower MERs.</p> Signup and view all the answers

    What emotional challenge might investors face when dealing with US ETFs?

    <p>Worrying about USD/CDN exchange rate fluctuations</p> Signup and view all the answers

    What is a key difference between fiat currency and cryptocurrency regarding control?

    <p>Fiat currency is monitored by a central authority.</p> Signup and view all the answers

    What is the main subscription fee for maintaining a USD dominated account mentioned?

    <p>$10/month</p> Signup and view all the answers

    Which of the following is NOT a reason that people may feel secure having a financial advisor?

    <p>Managing investments with minimal fees</p> Signup and view all the answers

    What is one approach that DIY investors can take to improve their investment outcomes?

    <p>Dollar cost averaging</p> Signup and view all the answers

    What type of investments do REITs allow you to access?

    <p>Various types of real estate</p> Signup and view all the answers

    What is the primary drawback of investing in an individual REIT?

    <p>It's similar to investing in a single stock and is risky</p> Signup and view all the answers

    Which of the following is considered a superior investment option compared to mutual funds?

    <p>ETFs</p> Signup and view all the answers

    Which asset allocation is recommended for long-term growth?

    <p>100% equities</p> Signup and view all the answers

    What is a key aspect of a withdrawal strategy mentioned in the content?

    <p>Deciding on a fixed withdrawal rate each year</p> Signup and view all the answers

    What is the primary goal of active investing?

    <p>To beat the stock market’s average returns</p> Signup and view all the answers

    Which of the following best describes passive investing?

    <p>A buy-and-hold mentality with limited transactions</p> Signup and view all the answers

    Which statement about mutual funds is true in the context of active investing?

    <p>Active managers of mutual funds have discretion over investments.</p> Signup and view all the answers

    What is a common characteristic of an index fund?

    <p>It tracks a specific market index automatically.</p> Signup and view all the answers

    Why do actively managed funds often charge higher fees?

    <p>They require hiring experts and conducting in-depth research.</p> Signup and view all the answers

    What approach do passive investors typically resist?

    <p>Short-term market reactions</p> Signup and view all the answers

    Which of the following is NOT considered a part of passive investing?

    <p>Reacting to market fluctuations actively</p> Signup and view all the answers

    What kind of companies does the S&P 500 index represent?

    <p>The 500 largest publicly traded companies in the U.S.</p> Signup and view all the answers

    Study Notes

    Investing Fundamentals #1

    • Top 1% earners globally earn $60,000 USD annually after tax.
    • Building a solid financial foundation involves several key strategies:
      • Wise investments
      • Obtaining wealth
      • Helping others
    • Achieving financial freedom by investing now for greater future wealth.

    Investing Fundamentals #2

    • Stock is a claim on a company's assets and earnings.
    • Stockholders are entitled to earnings and voting rights.
    • Public companies sell stock on exchanges (Toronto or New York).
    • Stock prices fluctuate daily based on supply and demand.

    Investing Fundamentals #3

    • Mutual funds pool investor money for a common goal.
    • Mutual fund managers invest in various assets (stocks, bonds).
    • Each fund has a stated purpose, e.g., U.S. Large Cap funds, only investing in large U.S. companies.
    • Fund performance is measured by net asset value (NAV).

    Investing Fundamentals #4

    • Buy and sell ETFs/Stocks throughout the day, just like individual stocks.
    • ETFs are generally less expensive than mutual funds and have lower "turnovers".
    • Use a brokerage account (RRSP, TFSA or taxable) to buy and sell investments.

    Investing Fundamentals #5

    • Fiat currency is issued by governments, centralized, and has unlimited supply.
    • Cryptocurrencies are digital, decentralized, have a limited supply, and aren't restricted by borders.
    • Crypto is often associated with tax evasion.
    • How much to invest monthly for retirement:
      • Set a monthly (post-tax) retirement goal.
      • Convert the goal to pre-tax.
      • Adjust for inflation, which reduces purchasing power.
      • Determine a withdrawal rate.
      • Estimate years until retirement.
      • Calculate monthly investment needed for goal.

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    Description

    Test your knowledge on the key concepts of investing with this comprehensive quiz. Covering topics like stocks, mutual funds, and ETFs, this quiz will help you solidify your understanding of building a financial foundation. Prepare to delve into the world of investing and enhance your financial literacy!

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