Portfolio Allocation Investor Quiz

Must Answer Questions for Confident Investing

These questions are based on the core belief that education plus understanding leads to confidence and peace of mind around investing. In other words, confusion, stress and anxiety are the result when we are “in the dark” about important investment issues. Note: When answering these questions, you must be 100% confident that you know the answer to the question to qualify for a “yes” answer on the quiz.

1. Are you invested in the market? (We’ll start with an easy one. Investing in the market, historically, has been one of the best ways to protect investors from inflation risk.)

2. Do you know how markets work? (Do you understand the underlying dynamics of the market? If not, that is a recipe for a lot of stress and bad feelings when you own stocks and markets don’t perform as you expect.)

3. Have you defined your investment philosophy? (Have you made a choice regarding whether you believe markets work or that they fail? Is your portfolio being managed in accordance with your belief system?)

4. Do you have a system to measure portfolio volatility? (Can you measure the risk of your portfolio? This is important, because you can’t control something you can’t measure.)

5. Do you consistently match market returns? (The vast majority of investors don’t.)

6. Have you measured the total amount of commissions and costs in your portfolio? (Even “fee-only” accounts contain trading costs and management expenses that aren’t necessarily visible to the investor. Do you know what those expenses are?)

7. Do you know where you fall on the Markowitz Efficient Frontier? (Markowitz found an academic way to evaluate the risk and expected returns of various portfolio mixes. With this knowledge, investors and their advisors can create portfolios with a maximum expected return for the level of risk they are willing to take.)

8. When it comes to building your investment portfolio do you (or your advisor) know exactly what you are doing and why?

9. Do you have a customized game plan to guide all of your investing and spending decisions? (Most investors can’t imagine having such a plan in place. I find it essential for helping investors prioritize and create focus in their lives.)

10. Do you have an investment policy statement? (This is mandatory for qualified pension plans. If it is good for them, it is also good for you.)

11. Have you devised a clear-cut method for measuring the success or failure of your investment portfolio? (How do you really know that your investments are providing the right return based on the asset categories you are holding? Note: If someone else is managing your investments, they may have little incentive to provide you with such a system. )

12. Do you know how to measure diversification in your portfolio? (Do you know how the different investments in your portfolio move with and against each other? If you don’t, you may find them all moving down together during the next market downturn.)

13. Do you know how much you could lose historically over a two or three year market crash?

14. Do you know the historic rate of return after inflation for the mix of assets you now possess?

15. Do you know the three warning signs that you or your advisor are gambling and speculating with your money versus prudently investing it?

16. Are you working with a financial coach versus a financial planner? (A coach will help you answer these questions and help solve the chronic problems that the majority of advisors create.)