Finance Fridays
Finance Fridays is a publication of the NC Department of State Treasurer. Treasurer Brad Briner is focused on preserving, protecting, and sustaining the state’s pension and healthcare plans. Briner was most recently the Co-Chief Investment Officer for Willett Advisors and has held positions at Morgan Creek Capital, the UNC Management Company, ArcLight Capital, and Goldman Sachs.
Issues and Quiz Answers
Click here to download this issue as a PDF file.
Test Your Knowledge Questions and Answers:
For Teens
For the past 65-plus years, the S&P 500 Index Fund has averaged approximately 10% returns. With this rate of return, how much money would you have in 20 years if you invested $100 per week?
- A. $75,944.21
- B. $328,814.03
- C. $100,000.00
The answer is B.
What is the average cost of college attendance (tuition and fees, books and supplies and room and board on campus) in the United States?
- A. $9,750
- B. $38,270
- C. $28,386
The answer is B.
For Adults/Seniors
If you were able to set aside $50 each month for retirement, how much would that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?
- A. About $15,000
- B. About $30,000
- C. About $40,000
- D. About $60,000
- E. More than $60,000
The correct answer is C: about $40,000, assuming a 7 percent rate of return. Only 16 percent of the 2,000 respondents answered correctly.
Suppose you have $100 in a savings account and the interest rate is 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
- A. More than $102
- B. Exactly $102
- C. Less than $102
- D. I don’t know
The correct answer is A. You’d have $102 after the first year. Over the next four years, interest will grow on that $102, meaning you’ll have more than $102. It’s a phenomenon known as compound interest.
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
- A. More than today
- B. Exactly the same as today
- C. Less than today
- D. I don’t know
The correct answer is C: less than today. “If inflation is 2 percent, prices go up 2 percent,” says Lusardi. “But if you only earned 1 percent in your savings account, you basically can buy less.”
True or False?---Buying a single company stock usually provides a safer return than a stock mutual fund.
The answer is false. “A single company is a lot riskier than a basket of stocks,” says Lusardi. “Don’t put all of your eggs in one basket.”
Sources
Average Stock Market Return: A Historical Perspective and Future Outlook from Business Insider
Compound Interest Calculator from NerdWallet
Most Americans can’t answer these 5 basic money questions from CNBC
Average Cost of College & Tuition from Education Data Initiative