Your young neighbor Suzy recently received $500 for her birthday. She is an aggressive investor and wants to get every penny invested right away. She also wants to invest the $100 she makes each month from her paper route. She is very interested in investments and knows that she should invest in a well-diversified portfolio. However, she also knows that she is still learning and could use some guidance from experts with experience. What type of investment would you recommend as the best fit for Suzy?
- Blue Chip Stocks
- AAA rated Bonds
- Low cost ETF
- Diversified Mutual Fund
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Correct answer: D. Diversified Mutual Fund
With only $500 it will not be possible to purchase a well-diversified portfolio of blue chip stocks due to the cost per individual share.
As a young aggressive investor AAA Bonds would not be appropriate choice given the clients risk tolerance.
A low cost ETF could be a good recommendation except the investor wants to invest every last penny right away as well as set up a monthly investment plan. These are features that are not possible with ETFs.
A diversified mutual fund also gives Suzy the expertise she requires in the form of the mutual fund's management team.