Some people argue that there are two advantages to holding mutual funds.The first is that mutual funds provide an inexpensive way to hold a diversified portfolio.The second is that because of their expertise mutual fund managers should be able to consistently beat the market.Which of the following does the evidence show?
A)Diversification does reduce risk and mutual funds typically outperform the market.
B)Diversification does reduce risk,but mutual funds do not typically outperform the market.
C)Diversification does not reduce risk but mutual funds typically outperform the market.
D)Diversification does not reduce risk and mutual funds do not typically outperform the market.

Question

Quizplus · Accepted Answer

The evidence shows that diversification does reduce risk, but mutual funds do not typically outperform the market. While there may be some mutual fund managers who are able to consistently outperform the market, it is difficult to identify them in advance and past performance is not necessarily an indicator of future success. Therefore, the second advantage listed is not consistently supported by evidence.

Some People Argue That There Are Two Advantages to Holding