Question

A customer who has an objective of growth and is not concerned with current income would invest the majority of funds in common stocks, principally growth stocks. The risk associated with such a strategy is that either the stock market takes a dive, taking these stocks with it, or that some of these companies 'lose their way' and perform poorly. You can always use the guideline that the customer should invest his or her 'age' in bonds, with the balance in equities. This would give ________.

Answer 1

An investor aiming for growth typically invests in growth stocks, but should consider their age when determining the balance between stocks and bonds. Mutual funds provide diversification, which is especially advantageous for young investors who can withstand market fluctuations for greater returns over time.

Step-by-step explanation:

A customer with an objective of growth who is unconcerned with current income would likely invest in common stocks, specifically growth stocks. The associated risk of this strategy involves potential market downturns or individual companies underperforming. A common guideline suggests that an investor should allocate a percentage of their investments in bonds equivalent to their age, with the remainder in equities. This would offer a balance that shifts towards lower risk as the investor ages, thereby aligning with their changing risk tolerance and investment time horizon. Mutual funds offer the advantage of diversification, which can be particularly beneficial for young workers who have time to endure the stock market's volatility and can therefore anticipate higher long-term returns compared to bonds or bank accounts.