Question

Erna is looking for a mutual fund that can provide her with long-term capital appreciation. She would also like the mutual fund to mimic the investments in the S&P/TSX Composite Index. Which of the following mutual funds would be the most appropriate?

Answer 1

Erna should choose an index fund that tracks the S&P/TSX Composite Index for long-term capital appreciation and market mimicry. Index funds provide diversification and tend to have low fees, aligning with her investment goals.

Step-by-step explanation:

Considering Erna's goal for long-term capital appreciation and her interest in a mutual fund that tracks the S&P/TSX Composite Index, the most appropriate type of mutual fund would be an index fund. An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the S&P/TSX Composite Index. It provides broad market exposure, low operating expenses, and low portfolio turnover.

These funds follow their benchmark index no matter the state of the markets and aim to replicate its performance. Erna should look for a mutual fund that specifically states it aims to track the performance of the S&P/TSX Composite Index. By doing so, the value of Erna's investment will fluctuate along with the average of the overall stock market reflected in that index. This strategy employs diversification by holding a variety of securities, which helps reduce the risk associated with investing in individual stocks.

Answer 2

Erna should choose an index fund that tracks the S&P/TSX Composite Index for long-term capital appreciation and to mimic the market's performance.

Step-by-step explanation:

Erna is seeking a mutual fund that provides long-term capital appreciation and replicates the performance of the S&P/TSX Composite Index. The most appropriate option for her would be an index fund. An index fund is a type of mutual fund designed specifically to mimic the investments and performance of a market index, which in Erna's case is the S&P/TSX Composite Index. Such a fund would invest in a portfolio of assets that represent the index, providing diversification and reducing the risk associated with investing in individual securities. Moreover, the value of the index fund will fluctuate with the average of the overall stock market, which aligns with Erna's investment goal of tracking the market index.