Retiring Early Quiz

How to Retire Early Quiz

In his book How To Retire Early & Live Well With Less Than A Million Dollars, author Gillette Edmunds discusses several index investing strategies. Contributing writer Larry Putnam used several ideas from the book to construct this quiz. See how many of the questions you can answer correctly. Answers provided at bottom of page.

1. How To Retire Early & Live Well is about:

(A) Retiring early using day-trading profits
(B) Retiring early and living off a $500,000 nest egg
(C) Retiring early after accumulating $2,000,000
(D) 10 Steps to successful investing

2. According to Gillette Edmunds, in 1996 the typical U.S. investor had an investment allocation of what percentage of U.S. stocks/U. S. bonds/cash?

(A) 80/10/10
(B) 60/30/10
(C) 50/10/40
(D) 40/30/30

3. Which asset class or classes closely follow the rate of return on U.S. stocks?

(A) U. S. real estate
(B) Foreign stocks
(C) Foreign bonds
(D) All of the above
(E) None of the above

4. Over the next 20 years, Gillette Edmunds, the author of How To Retire Early & Live Well believes:

(A) Prices for U. S. bonds will beat inflation
(B) Prices of U. S. stocks will increase faster than foreign stocks
(C) Prices for Real Estate Investment Trust (REIT) shares will increase faster than U. S. stock prices
(D) Oil and gas sector funds will decrease in value

5. Which of the following index-investing characteristics does Gillette Edmunds favor in his book, How To Retire Early & Live Well?

(A) Paying high commissions for mutual fund investments
(B) Buying "momentum" stocks that are moving higher in price
(C) Buying a sector fund that is not correlated with U.S. stock prices
(D) Using "technical analysis" to select the best stocks to buy

6. Which asset class does Gillette Edmunds feel will return an average of 14% over the next 20 years?

(A) emerging markets
(B) U.S. stocks
(C) U.S. bonds
(D) U.S. real estate

7. The author believes investors should do the following:

(A) beat the market
(B) time the market
(C) buy the market

8. How To Retire Early & Live Well:

(A) guarantees the reader will be able to retire early by following the author's ideas
(B) states that an investor must have a nest egg of $1,000,000 before retiring
(C) suggests investors diversify into non-U.S.-stock-and-bond correlated asset classes
(D) requires you set up an electronic trading account with a broker

Answers

1. B is the correct answer. Gillette Edmunds retired nearly 20 years ago and has successfully lived off his $500,000 nest egg ever since.

2. D is the correct answer. Edmunds feels U.S. stocks and bonds are currently overvalued and the average investor gets a puny return on the 30% sitting in cash accounts such as checking, savings, and money market funds.

3. E is the correct answer. None of these asset classes, including U.S. real estate, closely follows the return on U.S. stocks. Gillette Edmunds argues investors should hold no more than one-third of their investments in U.S. stocks and bonds and two-thirds or more of their investments in asset classes like U.S. real estate and foreign stocks and bonds because they do not blindly follow U.S. stocks and bonds.

4. C is the correct answer. Edmunds also likes REIT's as investments, even though they are "boring" because prices do not correlate with U.S. stocks and bonds.

5. C is the correct answer. The book suggests purchasing oil and gas sector funds to diversify an investment portfolio.

6. A is the correct answer. Although volatile, Edmunds feels emerging market stocks will outperform all other asset classes over the next 20 years returning 14% per year, on average.

7. C is the correct answer. The author suggests index funds allow an investor to diversify investments broadly an entire market or sector. Purchasing a REIT or oil and gas sector fund allows the investor to diversify broadly across market sectors.

8. C is the correct answer. Gillette Edmunds is trying to get investors to think differently - that there is a strong possibility U.S. stocks and bonds will not have very high rates of return over the next 20 years. He urges investors not to rely so heavily on U.S. bonds and equities and to consider buying other asset classes to spread their risk.

11/09/2000