SIE (Securities Industry Essentials) Practice Exam

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Prepare for the SIE (Securities Industry Essentials) Exam. With comprehensive questions and detailed explanations, enhance your knowledge and readiness for this crucial finance exam.

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Which of the following is an advantage of index funds?

Highly active management
Higher potential returns
Lower management fees due to passive management
Personalized investment advice

The correct answer is: Lower management fees due to passive management

Index funds are passively managed, meaning that they aim to replicate the performance of a market index rather than actively trying to outperform it. This reduces the amount of work and resources needed to manage the fund, resulting in lower management fees. Therefore, out of all the choices, C is an advantage because it allows investors to save on fees and potentially increase their overall returns. A, B, and D are not advantages of index funds because they involve higher costs (such as hiring a fund manager or seeking personalized advice) and may not result in better returns since index funds typically outperform actively managed funds in the long run.