Which is riskier, an investment fund or a savings account? Explain why.
a. Investment funds and savings accounts can both assume many different levels of risk. Since they are both overseen by a manager that could pick assets that decrease in value, neither type of investment is any riskier than the other.
b. Neither type of investment assumes any risk because they are both insured by the federal government against loss. This means that neither type of investment is any riskier than the other.
c. A savings account is riskier because the account is overseen by an account manager who decides which financial assets the account is invested in. The account manager could pick assets that decrease in value.
d. An investment fund is riskier because the fund is overseen by a fund manager who decides which financial assets the fund is invested in. The fund manager could pick assets that decrease in value.
d. An investment fund is riskier because the fund is overseen by a fund manager who decides which financial assets the fund is invested in. The fund manager could pick assets that decrease in value.
While both investment funds and savings accounts can assume different levels of risk, investment funds generally carry a higher level of risk compared to savings accounts. This is because investment funds invest in a variety of financial assets such as stocks, bonds, and other securities. The fund manager has the authority to make investment decisions and choose these assets for the fund. If the fund manager makes poor investment choices or picks assets that decrease in value, the investment fund's overall performance can suffer, leading to potential losses for investors.
On the other hand, a savings account is generally considered a lower risk investment because it is typically held at a bank or financial institution and guaranteed by the federal government up to a certain amount. Although savings account returns may be lower, the principal amount is protected by deposit insurance.
Therefore, the investment fund, due to its reliance on a fund manager's decision-making process and the potential for losses in financial markets, is generally considered riskier compared to a savings account.