Canadian Securities Course (CSC) Level 2 Practice Exam

What must always be considered when dealing with mutual funds?

1. Past performance indicators

2. Impact on industry trends

3. Diversification and regular review

4. Interest and dividend yields

The correct answer is: Diversification and regular review

When dealing with mutual funds, it’s essential to prioritize diversification and regular review. Diversification is a critical principle in investing because it minimizes risk by spreading investments across various assets, sectors, or geographic areas. This approach helps protect against significant losses if one sector or investment performs poorly. Regularly reviewing a mutual fund’s performance ensures that it continues to meet your investment goals and aligns with your risk tolerance. By conducting these reviews, you can make informed decisions about adjusting your portfolio as market conditions change or your investment objectives evolve. The other aspects, while relevant in certain contexts, do not encompass the fundamental strategies that can safeguard and optimize a mutual fund investment over time. Past performance indicators may indicate how a fund has fared, but they do not guarantee future results. Similarly, the impact on industry trends and interest and dividend yields may offer insights, but they are secondary to the core principle of maintaining a diversified portfolio and reviewing its performance regularly to ensure it remains aligned with your goals.