Question

Which of the following decisions would probably have the largest impact on the risk and return of your portfolio?

Choosing between stocks and long-term government bonds

Choosing between long-term and short-term corporate bonds.

Choosing between long-term and short-term government bonds.

Choosing between S&P500 Mutual funds and S&P500 ETFs

Answer 1

Correct answer: Choosing between stocks and long-term government bonds

Risk profile of stock and bonds are different. Stocks have very high risk but Bonds have low to moderately high risk. And, due to difference in risk level, expected return of stocks are higher than bonds.

Mutual funds and ETF of S&P500 would have similar risk level and expected return.

Thus, choosing between stocks and long-term government bonds have the largest impact on the risk and return of your portfolio.