SIE Exam Question 25: Answer and Explanation

Question: 25

Which of the following investments would be most suitable for a young investor who can only invest a small amount each month?

• A. Common stock
• B. Corporate bond
• C. Options
• D. Mutual fund

Correct Answer: D

Explanation:

A mutual fund would be the most suitable investment for a young investor who can only invest a small amount each month. Investing in the S&P 500 Index Fund would allow newer, younger investors to enjoy the outstanding performance of multiple companies without requiring outstanding investment knowledge or experience. Assuming that the young investor has little capital to invest in stocks and maintain a diversified portfolio, common stocks might leave the investor at a loss if other stocks perform better. Corporate bonds are better suited for conservative investors who are more concerned about steady income, as well as avoiding the risk of losing their initial investment. Options may be too complex for young investors who have no prior experience. Investing in options without proper knowledge could lead to overleveraging and speculation.