Question

A 28-year-old single investor has funds saved at a bank. He contacts an RR and wants to begin allocating funds to a retirement account. What choices is the most appropriate asset allocation?

Answer 1

Answer: a. 80% stocks, 20% bonds

Explanation:

Stocks are a better fit for young people for 2 reasons;

1. Younger people are usually more risk tolerant. This means that they can pick financial vehicles that are more reflective of this risk taking mentality such as Stocks.

2. As they are far from retirement, their main goal should be saving for retirement. Stocks offer a better chance as Capital Appreciation so that their investments will grow before they retire leaving them in a better position when they do.

Fixed income is more for the older generation so that they may be sure of stable income while they are in retirement.

At the same time, every portfolio should be diversified to avoid risk so 20% going to bonds is ideal.