Certified Plan Sponsor Professional (CPSP) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Certified Plan Sponsor Professional Exam. Use flashcards and multiple choice questions with full explanations. Achieve exam success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What style of investing is currently trending in defined contribution plans?

Active investing
Passive investing
Speculative investing
Value investing

The correct answer is: Passive investing

The current trend in defined contribution plans is towards passive investing, which focuses on replicating the performance of a specific index rather than trying to outperform it through active management strategies. Passive investing is often favored for its lower fees and reduced turnover, making it an attractive choice for plan sponsors and investors alike. In defined contribution plans, where participants frequently change jobs and access their funds more readily, the cost-effectiveness and simplicity of passive investing methods are particularly appealing. The use of index funds or exchange-traded funds (ETFs) allows for broad market exposure with minimal management effort. This trend reflects a growing recognition of the benefits of diversification and the challenges of consistently achieving better-than-average returns through active management. The shift toward passive investing thus aligns well with the objectives of many defined contribution plans, as both participants and sponsors seek to maximize investment growth while managing risks and costs effectively.