Final answer:
A pension fund manager must consider the risk and return profile of stock funds, bond funds, and money market funds for diversifying investments. Younger individuals with a long investment horizon may lean towards stocks, whereas those closer to retirement might prioritize stability with lower risk options such as bonds or money market funds.
Step-by-step explanation:
A pension fund manager considering different types of mutual funds must weigh the tradeoffs between risk and return. Stock market investments offer higher returns over the long term but come with greater risk of fluctuation in the short term. It is often suggested that younger investors can afford to invest more in stocks as they have time to ride out market volatility, while those nearing retirement may prefer the stability of bonds or a money market fund offering a safe return, such as the 8% mentioned. Mutual funds are beneficial as they allow for diversified investment across different assets, which can mitigate risk and reduce transaction costs due to their economies of scale.
With the rise of the internet, it has become easier to invest in diversified portfolios through mutual funds. According to the Investment Company Factbook, a significant percentage of U.S. households invest in mutual funds, many utilizing them for retirement savings and pension plans. The choice of investment vehicles, whether it be stocks, bonds, or mutual funds, should align with an individual's financial goals, age, and risk tolerance, to effectively accumulate personal wealth.