Mutual funds are often considered to be a good way to get started with medium-risk investments.

Question

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The statement to evaluate is: 'Mutual funds are often considered to be a good way to get started with medium-risk investments.'

Option 1 (True): This claim is generally supported by investment education and industry practice. Mutual funds offer diversification across many securities, which tends to reduce unsystematic risk relative to picking a single stock. They also provide professional fund management, which can help a beginner implement a strategy without needing expert stock-picking skills. For a beginner aiming for a middle-of-the-road risk profile, a broad-based index fund or a balanced/mixed-asset fund can align with medium risk and still remain accessible with relatively small minimums. Of course, there is a spectrum of mutual funds (from money market to equity funds), so the exact risk level depends on the specific fund type chosen; the statement speaks to the general usefulness for medium risk rather than guaranteeing that all mutual funds are medium risk.

Option 2 (False): One could counter that mutual funds are not inherently tied to a medium risk; they can be low-risk (e.g., money market funds, short-term bond funds) or high-risk (e.g., concentrated equity funds, sector funds). Therefore, saying they are 'often' a good way to start with medium-risk investments could be misleading for someone who needs a very specific risk target or who encounters funds with varying risk levels. The accuracy of the claim depends on selecting an appropriate fund type, and readers could misinterpret the blanket statement as applying to all mutual funds rather than a typical medium-risk option.

Option 1 (True) is supported by the notion of diversification, accessibility, and suitable formats for moderate risk, while Option 2 (False) highlights that risk varies by fund and that not all mutual funds fit a medium-risk starting point. The contrast emphasizes that the suitability hinges on choosing the right fund rather than the category itself guaranteeing medium risk.

In practical terms, starting with a broad-based or balanced mutual fund is commonly recommended for those seeking medium risk, though investors should always assess the fund’s prospectus, risk level, and fees before committing.

Introduction to Personal Finance CP - 2 - Beatty - Preparatory Academy - 1st Semester - 2025/2026 Final Exam- Requires Respondus LockDown Browser

Mutual funds are often considered to be a good way to get started with medium-risk investments.

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