Joseph and Mack are good friends who have similar jobs that pay them well. Both have established budgets that allow them to invest several hundred dollars each month. Mack has a strategy of putting most of his money in bank CDs and a savings account. Joseph has opted for a strategy of investing in the stock market. According to the evidence of the past 50 years, it is likely that over the long run:
A) Mack and Joseph will experience very similar rates of return.
B) Mack will experience a significantly higher return than Joseph.
C) Joseph will experience a significantly higher return on his investments than Mack, but will also experience more ups and downs over the years.
D) Mack will experience a slightly higher return, but Joseph's return will be more stable and predictable.

Question

Quizplus · Accepted Answer

Historical evidence shows that investing in the stock market tends to provide higher returns over the long run, but also comes with more ups and downs, or volatility. On the other hand, bank CDs and savings accounts offer lower returns, but with more stability and predictability. Therefore, it is likely that Joseph's strategy of investing in the stock market will provide a significantly higher return over the long run, but also with more volatility, while Mack's strategy of relying on bank CDs and savings accounts will provide lower but more stable returns.

Joseph and Mack Are Good Friends Who Have Similar Jobs