It would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks of the Standard and Poor's 500 Index.

Question

BlackTom AI · Accepted Answer

The statement presents a claim about the practicality of an individual investor benefiting from owning all 500 stocks in the S&P 500.
Option 1: True. If we interpret this as meaning it is difficult and expensive for a single investor to replicate or benefit from the index by purchasing all 500 individual stocks, this would reflect concerns about transaction costs, taxes, and bid-ask spreads. In practice, those frictions can make direct, full replication costly and impractical for many individuals, especially smaller accounts. However, this view ignores the availability of low-cost, diversified alternatives that achieve the same exposure with far less effort and expense.
Option 2: False. It is no longer necessary for an investor to buy all 500 stocks to gain the benefits of broad market exposure. The rise of index funds and exchange-traded funds (ETFs) allows investors to obtain the same diversification and index-level return by purchasing a single security that tracks the S&P 500. These vehicles dramatically lower transaction costs, simplify management, and tax considerations, making it easy and inexpensive to benefit from the index performance even for individual investors.
Option 3: If one argued that holding all 500 stocks is conceptually ideal but practically burdensome, this would hinge on the difference between theoretical replication and practical implementation. In that view, the statement mixes a theoretical ideal with real-world constraints, but the practical answer today is that investors can access the index without holding every constituent.
Option 4: Another possible angle is to claim that while it’s easy to “benefit,” it requires sophisticated tax handling or rebalancing. Yet many index funds handle these tasks efficiently at the fund level, reducing the burden on individual investors.
In summary, while buying every single stock would have historically entailed costs and effort, modern investing offers simpler, cheaper means to obtain S&P 500 exposure. Therefore, the assertion that it would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks is not accurate in the current investment landscape, given the widespread availability of index funds and ETFs that replicate the index at minimal cost.

BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

It would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks of the Standard and Poor's 500 Index.

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