Final answer:
It is false that an investment novice should primarily put money in stocks due to their volatility. Mutual funds could be a better starting point as they offer diversification and reduced risk, which suits someone unfamiliar with intricate market details. Investment decisions should be aligned with the investor’s life stage, with younger individuals able to tolerate higher risks for potentially greater long-term returns.
Step-by-step explanation:
It is false that someone not yet familiar with different investment vehicles would preferably put their money in stocks. While stocks can offer high returns over a long time horizon, they also come with high risk due to volatility in the short term. Beginners might consider mutual funds for diversification and reduced risk, especially if they lack in-depth knowledge about stock market investments. Mutual funds allow investors to pool their money together to invest in a diversified portfolio of stocks, bonds, or other securities, which can minimize the risk of losing money if one investment underperforms.
Determining where to invest depends significantly on the investor's life stage. For example, a person nearing retirement would likely prefer more stable and lower-risk investments—such as bonds or high-yield savings accounts—over the potential upside of stocks, due to needing certainty about their retirement income. On the other hand, younger individuals have a longer time horizon, allowing them to weather short-term market fluctuations and potentially benefit from the typically higher long-term returns of stocks.