Final answer:
The best option for saving for a long-term goal like a house down payment or college education is a diversified investment portfolio which includes a variety of stocks, bonds, and cash. This mitigates risk through asset variation and promises more stable growth over time compared to the volatility of an all high-tech stock portfolio.
Step-by-step explanation:
If you were saving for a down payment on a house or the college education of a newborn, the ideal choice would be b) An investment portfolio with different types of stocks, bonds, and cash. This approach to investment is based on the principle of diversification, which helps to spread risk. A portfolio that includes only high-tech stocks is highly susceptible to industry-specific risks and market fluctuations, which can be problematic for long-term goals like homeownership and education funding.
On the other hand, a diversified portfolio includes a mix of assets with varying levels of risk and return. This not only mitigates your risk but also provides the potential for steady growth over time. For example, while bonds provide stable returns and lower risk compared to stocks, they can balance out the volatility of high-tech stocks and other equities. Cash and cash equivalents offer liquidity and safety, which is essential for any financial plan.
Markets have shown that while high-tech stocks can offer large returns, they can also suffer significant losses. A portfolio made up of different asset classes ensures that you are not placing all your eggs in one basket. Therefore, diversification is key when planning for important long-term financial goals.