Questions: Decide whether the following statement makes sense (or is clearly true) or does not make sense (or is clearly false). Explain your reasoning. I'm putting all my savings into stocks because stocks always outperform other types of investments over the long term. Choose the correct answer below. A. The statement does not make sense because although stocks historically outperform bonds and cash over the long term, investing in stocks is high-risk and there is no guarantee that the investment will yield a high return. B. The statement does make sense because stocks are a low-risk investment, offering predictable low returns. C. The statement does make sense because stocks historically outperform bonds and cash over the long term and investing in stocks is high-risk, which offers higher returns. D. The statement does not make sense because stocks never outperform bonds and cash over the long term.

The answer is A: The statement does not make sense because although stocks historically outperform bonds and cash over the long term, investing in stocks is high-risk and there is no guarantee that the investment will yield a high return.

Explanation for each option:

A. The statement does not make sense because although stocks historically outperform bonds and cash over the long term, investing in stocks is high-risk and there is no guarantee that the investment will yield a high return.

• This option is correct. While it is true that stocks have historically provided higher returns compared to bonds and cash over the long term, they also come with higher risk. Market volatility, economic downturns, and company-specific issues can all impact stock performance. Therefore, putting all savings into stocks without considering diversification and risk tolerance is not a prudent investment strategy.

B. The statement does make sense because stocks are a low-risk investment, offering predictable low returns.

• This option is incorrect. Stocks are generally considered high-risk investments due to their volatility and the potential for significant losses. They do not offer predictable low returns; instead, they can offer high returns but with a corresponding high level of risk.

C. The statement does make sense because stocks historically outperform bonds and cash over the long term and investing in stocks is high-risk, which offers higher returns.

• This option is partially correct but ultimately misleading. While it acknowledges the historical outperformance of stocks and their high-risk nature, it fails to address the importance of diversification and the fact that high risk does not guarantee high returns. Therefore, it does not fully justify putting all savings into stocks.

D. The statement does not make sense because stocks never outperform bonds and cash over the long term.

• This option is incorrect. Historical data shows that stocks have generally outperformed bonds and cash over the long term. However, this outperformance comes with higher risk, which is why diversification and risk management are crucial in investment strategies.