QuestionQuestion 3(Multiple Choice Worth 3 points)
(Planning for Retirement LC)
An employee is 38 years old and has had a retirement account for 13 years, with about 29 years to go before retirement. Which breakdown of investments would a financial advisor most likely suggest for the employee at this point in time?
0\% high-risk, 10\% medium-risk, low-risk
high-risk, medium-risk, low-risk
high-risk, medium-risk, low-risk
high-risk, medium risk, low-risk
Studdy Solution
STEP 1
What is this asking?
Which mix of low, medium, and high-risk investments is best for someone who is pretty far from retirement?
Watch out!
Don't get tricked by thinking about what *you* would do with *your* money.
Think about general financial advice!
STEP 2
1. Consider time horizon.
2. Analyze risk tolerance.
STEP 3
Our employee is **38 years old** and has **29 years** until retirement.
That's a **long time**! years is a long time for investments to grow and recover from any potential dips.
STEP 4
With such a long time horizon, they can handle more risk.
If something goes wrong with high-risk investments, there's plenty of time to recover before retirement.
STEP 5
Generally, younger investors can tolerate **more risk**.
As we get closer to retirement, we want to shift towards safer, lower-risk investments to protect what we've earned.
STEP 6
Since our employee is still relatively young and has a long time until retirement, a financial advisor would likely suggest a **higher percentage of high-risk investments**.
STEP 7
The best answer is **70% high-risk, 25% medium-risk, and 5% low-risk**.
This mix takes advantage of the long time horizon, allowing for greater potential growth while still having a small portion in lower-risk investments for stability.
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