Long-term investments, properly diversified, include the following mutual funds:
A International, bond, aggressive growth, growth
B Growth, growth and income, bond, aggressive growth
C Growth, growth and income, international, aggressive growth
D Growth, balanced, international, bond
The correct answer and explanation is :
The correct answer is:
C. Growth, Growth and Income, International, Aggressive Growth
Explanation:
Long-term investments require a well-diversified portfolio that balances risk and return over an extended period. Proper diversification involves spreading investments across different asset classes to minimize risk while maximizing potential returns. Let’s break down why option C is the best choice.
- Growth Funds:
Growth mutual funds invest in companies with high potential for capital appreciation. These funds can experience higher volatility but tend to provide strong long-term returns. They are essential for long-term investments. - Growth and Income Funds:
These funds combine capital appreciation with dividend payments, providing a mix of stability and growth. They offer a balanced approach to investment, making them ideal for long-term wealth accumulation. - International Funds:
Investing internationally adds geographic diversification, reducing reliance on a single economy. International markets can perform differently than domestic markets, providing additional growth opportunities. - Aggressive Growth Funds:
These funds invest in high-risk, high-reward stocks, focusing on maximum capital appreciation. While volatile, they offer substantial growth potential, making them suitable for long-term investors willing to accept higher risk.
Why Not the Other Options?
- Option A (International, Bond, Aggressive Growth, Growth): Missing Growth and Income, which provides balance.
- Option B (Growth, Growth and Income, Bond, Aggressive Growth): Lacks international exposure, limiting diversification.
- Option D (Growth, Balanced, International, Bond): Lacks Aggressive Growth, which is essential for maximizing long-term returns.
Conclusion:
A properly diversified, long-term investment portfolio should include Growth, Growth and Income, International, and Aggressive Growth mutual funds. This mix provides strong potential for growth, stability through income funds, international diversification, and high-risk/high-reward aggressive investments.