Question

5] Select the answer that is most likely to accurately describe allocation strategies/investment philosophies for average investors.

A. Most investors are Active investors by intention and spend significant time and apply strong skills managing their investments.

B. Most investors are Passive investors by intention and spend significant time and skill lowering their investment costs and ensuring their portfolios are weighted in the same way as market indexes.

C. Most investors are Active investors by accident, don’t spend significant time managing their investments, and often don’t know their allocations or ensure they are matched to market indexes which is the best strategy for Passive investors.

Answer 1

B. Most investors are Passive investors by intention and spend significant time and skill lowering their investment costs and ensuring their portfolios are weighted in the same way as market indexes.

Reason:

Passive investing methods seek to avoid the fees and limited performance that may occur with frequent trading. Passive investing’s goal is to build wealth gradually. Also known as a buy-and-hold strategy, passive investing means buying a security with the intention to own it long term. Unlike active traders, passive investors do not seek to profit from short-term price fluctuations or market timing. The underlying assumption of passive investment strategy is that the market posts positive returns over time.