TDFs, 401ks, and IRAs

What's the main difference between a Roth IRA and a Traditional IRA?

• Roth IRAs have higher interest rates

• Roth IRAs have you pay taxes upfront

• Roth IRAs have higher fees

• Roth IRAs are riskier investments

Answer explanation

The main difference is that Roth IRAs have you pay taxes upfront, while Traditional IRAs allow you to defer taxes until retirement.

What is the main appeal of an index fund?

• They are always actively managed to add a human touch

• They are typically low cost and diversified investments

• They are always managed by a robo-advisor to remove human bias

• They give you partial ownership of a single company

Answer explanation

The main appeal of an index fund is that they are typically low cost and diversified investments, making them an attractive option for many investors.

What is the benefit of a target date fund (TDF)?

• TDFs come with lower fees

• TDFs adjust assets allocation automatically based on retirement year

• TDFs are insured against loss for the first 5 years

• TDFs guarantee a certain rate of return by the target date

Answer explanation

The benefit of a target date fund (TDF) is that it adjusts asset allocation automatically based on the retirement year.

Which of the below is an employer based retirement plan that both employees and employers contribute to?

• Traditional IRA

• Roth IRA

• 401K

• Pension

Answer explanation

The correct answer is 401K, which is an employer based retirement plan that both employees and employers contribute to.

Which of these accounts will NOT change if you switch jobs?

• IRA

• 401K

• Pension

Answer explanation

IRA will not change if you switch jobs because it is an individual retirement account that you own and manage independently of your employer.

Which type of account will your employer often "match" your contributions?

• Traditional IRA

• 401K

• Roth IRA

• Pension

Answer explanation

Employers often 'match' contributions in a 401K account, making it the correct choice.

Which of the following statements about having a financial planner manage your investment portfolio is TRUE?

• You don’t have a say in how you want to manage your portfolio.

• Having a manager often costs less than managing the portfolio yourself.

• The manager will charge fees that will decrease the profits you gain.

• Financial planners are guaranteed to beat the market all the time.

Answer explanation

The correct statement is that the manager will charge fees that will decrease the profits you gain.

Why might a target date fund be a good option for someone who wants a hands-off approach to investing?

• Target date funds automatically adjust your asset allocation as you get to retirement.

• Target date funds are actively managed by a fund manager.

• Target date funds only invest in low-risk bonds.

• Target date funds offer low fees while also promising to outperform the market.

Answer explanation

Target date funds automatically adjust your asset allocation as you get to retirement, making it a good hands-off approach to investing.

A disadvantage of using a robo-adviser might be that…

• You are charged higher fees than if a human fund manager adjusted your portfolio

• You may not be able to get advice from a human financial advisor when you want it

• You don’t have any input as to how your portfolio is invested

• You’ll be put on a waitlist to use the robo-adviser since there are only a handful of them to choose from

Answer explanation

The disadvantage of using a robo-adviser is that you may not be able to get advice from a human financial advisor when you want it.

Which of these accounts do you set up at a brokerage firm or other financial institution?

• 401K

• Pension

• Individual Retirement Account

Answer explanation

You set up an Individual Retirement Account at a brokerage firm or other financial institution.