SIE Understanding Products and Their Risks Question 26: Answer and Explanation

Question: 26

Which of the following would be a good practice both for an investor considering a mutual fund and an investor considering a hedge fund?

• A. Choose the share class whose sales charges match one's investment horizon.
• B. Know on what national exchanges the shares are traded.
• C. Select one's annuitization option.
• D. Match the fund's investment strategies and associated risks with one's personal investment goals, time horizons, and risk tolerance.

Correct Answer: D

Explanation:

D: Matching an investment's strategies and associated risks with one's personal investment goals, time horizons, and risk tolerance is appropriate for any person and any investment, including a mutual fund and a hedge fund. Share classes, Choice A, are choices of sales charges a mutual fund offers investors with different time horizons. Neither mutual funds nor most hedge funds are traded on national exchanges, Choice B. Choosing an annuitization option, Choice C, is done at the end of the accumulation period of an annuity after all investment funds have been submitted, typically to plan a level of income for life or a certain period, whichever is longer.