CMFAS M8 Risks of Collective Investment Schemes question: capital stability and cannot tolerate large losses

CMFAS M8Risks of Collective Investment Schemes

A risk-averse retiree who needs capital stability and cannot tolerate large losses is best matched with a fund at which end of the risk spectrum?

A The lower-risk end, such as a money-market or short-duration bond fund
B The higher-risk/higher-return end, such as an emerging-market equity fund
C The higher-return end, via a 2x leveraged ETF that resets daily
D A single-country frontier-market fund paying a high income yield

Show the answer and explanation

Answer: A. The lower-risk end, such as a money-market or short-duration bond fund

Suitability requires the fund's risk level to match the investor's tolerance, horizon and objectives; a risk-averse retiree fits the lower-risk/lower-return end — money-market or short-duration bond funds.

Common mistake

Recommending high-risk equity or leveraged funds to a client who cannot tolerate large losses.

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CMFAS M8 Risks of Collective Investment Schemes question: capital stability and cannot tolerate large losses

Answer: A. The lower-risk end, such as a money-market or short-duration bond fund

Common mistake

Related CMFAS M8 questions

CMFAS M8 Risks of Collective Investment Schemes question: capital stability and cannot tolerate large losses

Answer: A. The lower-risk end, such as a money-market or short-duration bond fund

Common mistake

Related CMFAS M8 questions