CSAT 2020

Q. Asset allocation is the most important investment decision we will ever make, and sadly, most of us do not give that decision the importance it deserves.

We are adamant about seeking predictability with our future. We tend to think of investing in risky assets as extremely volatile and value eroding. We also dislike fluctuating returns and the loss of control of investment. We think our money is best left idle unproductive but safe. There is no asset that is risk-free. We could lose our jobs, our homes can lose value, our banks can go bankrupt, our bonds can default, the government can collapse and companies we chose fondly may cease to exist. But we cannot live life assuming that all these extreme events are waiting to happen, and all at the same time. All these extreme forms or risks we know will not manifest at the same time.

Q1. Which one of the following statements best implies the suggestion given by the author of the passage?
(a) Distribute your wealth across different kinds of assets so that your risks would be minimized.
(b) Risk-taking behaviour should be a necessary component of your Personality if you want to generate wealth.
(c) While making investments, find a trustworthy asset management organization which would manage your wealth for you.
(d) You should know that investing your money is a risky business.
Correct Answer: (a) Distribute your wealth across different kinds of assets so that your risks would be minimized.

Question from UPSC Prelims 2020 CSAT Paper

Explanation : 

(a) Distribute your wealth across different kinds of assets so that your risks would be minimized is the statement that best implies the suggestion given by the author of the passage.

The author highlights that asset allocation is the most important investment decision we will ever make, and that no asset is risk-free. They suggest that while we tend to think of investing in risky assets as extremely volatile and value-eroding, we cannot live life assuming that all extreme risks will manifest at the same time. Therefore, the author implies that it is important to distribute our wealth across different kinds of assets so that our risks would be minimized.

More Questions:

Q. The last end of the state is not to dominate men, nor to restrain them by fear; rather it is so to free each man from fear that he may live and act with full security and without injury to himself or his neighbour. The end of the state, I repeat, is not to make rational beings into brute beasts and machines. It is to enable their bodies and their minds to function safely. It is to lead men to live by, and to exercise, a free reason; that they may not waste their strength in hatred, anger and guile, nor act unfairly toward one another.

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