For a household with a limited amount of savings, directly purchasing shares in a single, promising company is generally considered a less risky strategy than investing the same amount in a financial product that holds a wide variety of assets, because the household avoids the management fees associated with the pooled fund.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Household Investment Strategy
An individual with a modest amount of savings wants to invest in the stock market. Why would investing this sum in a mutual fund (a type of financial intermediary) generally be a more effective way to manage risk than using the same sum to buy shares in a single company?
The Role of Financial Intermediaries in Investment Diversification
Match each household investment action with its most direct financial principle or outcome.
Explaining Investment Diversification
An individual has saved $1,000 and wants to invest it for long-term growth. Considering the mechanisms available in the financial sector, which of the following actions most effectively achieves a broad diversification of investment risk for this individual?
A household saves $5,000 with the goal of using it for a house down payment in 20 years. They are considering two options: 1) investing the entire amount in the stock of a single, promising technology company, or 2) investing the entire amount in a broad market index fund, which holds small portions of hundreds of different companies. Which statement best evaluates the primary trade-off between these two strategies from the perspective of managing investment risk?
Investing Without Financial Intermediaries
Evaluating Investment Advice