Why should investors with a short investment horizon invest less money in common stocks?
A)Because the stock market is very volatile and a catastrophic market event can happen at any time.
B)Because the investors won't have enough time available to effectively recover from a loss of their investment principle.
C)Because the transaction costs will negatively affect their returns in the short-term.
D)All of the above are correct.
E)Only A and B are correct.

Question

Quizplus · Accepted Answer

Investors with a short investment horizon should invest less money in common stocks because the stock market is very volatile and a catastrophic market event can happen at any time. If such an event occurs, investors won't have enough time available to effectively recover from a loss of their investment principle. It's best to invest in more stable and less volatile investments with a shorter time horizon. Transaction costs can also negatively affect returns in the short-term, which makes investing in common stocks less attractive for these investors.

Why Should Investors with a Short Investment Horizon Invest Less