The Economist - 3 (News Based RC) | Verbal Ability (VA) & Reading Comprehension (RC) - CAT PDF Download

We've prepared a reading exercise based on an article from The Economist, a respected source known for its rich content. After reading, there are questions to test your understanding and critical thinking.
This exercise is beneficial for practicing reading comprehension with news articles. Reading newspapers helps you digest information faster, understand quickly, and improve your vocabulary. Our curated exercise focuses on popular news topics to enhance your skills.

Date: 16 November 2023

Passage

Young investors face a challenging investment landscape, markedly different from the golden era their parents enjoyed. The past four decades saw a global shares index yield an annualized real return of 7.4%, and global bonds at 6.3%. However, this golden age, fueled by globalization, low inflation, and falling interest rates, is likely over. Today's youth must navigate a market offering lower returns, balancing financial goals with moral values.
The long-term averages for stocks and bonds are 5% and 1.7% respectively. This shift implies that young investors might save too little, expecting high returns, or face demoralizing low returns ahead. The decline in bond yields since the 1980s, now reversing, suggests limited scope for future capital gains. Similarly, lower dividend and earnings yields in stocks indicate modest prospects for new investors.
Despite these challenges, young investors have unprecedented access to financial information and low-cost investment platforms. However, many fall into traps that could hinder their returns. One such trap is holding too much cash, which exposes them to inflation and opportunity costs. Another is a reluctance to invest in bonds, despite their potential to outpace inflation. Lastly, thematic investing, like ESG-focused funds, can lead to higher fees and less diversification.
Given the current market conditions, it's crucial for young investors to make wise decisions, as their early investment choices can influence their strategies for decades.
Q1: What is the primary challenge faced by young investors today, as highlighted in the passage
(a) High inflation and unstable global markets
(b) Lower expected returns compared to previous generations
(c) Difficulty in accessing financial information
(d) High costs of investment platforms
Ans: (b) Lower expected returns compared to previous generations
Sol: The passage emphasizes that the primary challenge for young investors is the end of the golden age of investing, leading to lower expected returns compared to what previous generations experienced.

Q2: According to the passage, what has been a significant factor in the reduced scope for future capital gains in bonds?
(a) The increase in global inflation rates
(b) The decline in bond yields since the 1980s
(c) The rise in stock market volatility
(d) The decrease in global interest rates
Ans: (b) The decline in bond yields since the 1980s
Sol: The passage mentions that the long decline in bond yields since the 1980s, which is now reversing, suggests limited scope for future capital gains in bonds.

Q3: What does the passage suggest is a consequence of thematic investing, such as ESG-focused funds?
(a) Increased diversification in investment portfolios
(b) Higher fees and less diversification
(c) Guaranteed higher returns
(d) Lower risk in market downturns
Ans: (b) Higher fees and less diversification
Sol: The passage indicates that thematic investing, including ESG-focused funds, often leads to higher fees and less diversification, contrary to what investors might expect.

Q4: What does the passage imply about the investment habits of young investors?
(a) They are likely to change frequently over time.
(b) They are heavily influenced by current market trends.
(c) They may persist for decades, influenced by early experiences.
(d) They are primarily focused on short-term gains.
Ans: (c) They may persist for decades, influenced by early experiences.
Sol: The passage suggests that the investment habits formed by young investors in their early years can shape their allocation strategies for many years, possibly decades.