Which of the following points out a hidden flaw in Darrell’s thinking?

QUESTION

Which of the following points out a hidden flaw in Darrell’s thinking?

A) In addition to owning mutual funds, many young investors purchase individual stocks through discount brokers.
B) While the stock market declined sharply in 2008-2009, it came back strongly in 2010-2011.
C) In recent years, investments in precious metals have appreciated more quickly than many mutual funds.
D) In the recent past, many securities rated as investment grade were, in fact, based on risky home mortgage loans and lost value.
E) Municipal bonds often are not paid off all at once but instead are paid off gradually over a period of five years or more.

ANSWER

Answer: D
Explanation: D) Darrell anticipates that choosing investment grade securities will ensure the steady growth of Leonid’s value. So Choice D is correct: If, in fact, some popular investments of this kind are risky and extremely volatile, his strategy is flawed from its very base. None of the other choices deal with the logic of his strategy. It may be true that many investors buy both individual stocks and mutual funds (Choice A), but this does not challenge Darrell’s argument that a very stable mutual fund could ballast such an investor’s portfolio. The recent performance of an alternative investment vehicle, Choice C, does not dispute the long-term strategy for Leonid. Choice B might be a consideration for short-term investors, but Leonid is being designed as a long-term alternative to stocks. Choice E is a general fact that does not bear on the strategy.