Final answer:
An ETF typically uses portfolio sampling to replicate the performance of a market index, balancing representation and cost-efficiency. Diligent monitoring of investments can lead to better performance, while a lack of attention may result in lesser returns. However, diversification does not guarantee success on its own.
Step-by-step explanation:
An ETF (Exchange Traded Fund) typically employs a portfolio sampling approach when it aims to track the performance of a market index. Portfolio sampling is a method where the ETF selects a representative sample of securities that mimic the characteristics of the total index. Investments in an ETF using portfolio sampling might offer a balance between representing the index and cost-efficiency in comparison to holding every security in the full index. This investment approach helps in maintaining diversity within the investment portfolio and may lead to reduced transaction costs and improved fund performance.
Comparing two investment strategies, where one is diligent in monitoring investment selections, prices, and current events, and the other is haphazard without attention to detail, the former approach may generally lead to better-informed decision-making and potentially better performance. A well-monitored portfolio can adapt to changing market conditions, whereas a neglected one might not perform as well, lacking timely adjustments to those same conditions. However, it's important to note that all investments carry risk, and attentive management does not guarantee success. Diversification is a key principle to help manage investment risk, but it does not ensure economic success by itself.