Question

Miguel is 25 years old, has low financial health, a long time horizon and a high risk

tolerance. Which asset allocation would you recommend?
A. 85% stocks and 15% bonds/cash equivalents.
B. 60% stocks and 40% bonds/cash equivalents.
C. 40% stocks and 60% bonds/cash equivalents.
D. 20% stocks and 80% bonds/cash equivalents.

Answer 1

A. 85% stocks and 15% bonds/cash equivalents.

Step-by-step explanation:

Being that Miguel is 25 years old, he has a very long time horizon over which his investments can grow. The fact that he has a low financial health means that he needs to adopt an aggressive investment strategy and that complements his high tolerance for risk. Investing majority of his assets should be in stocks since stocks are riskier than bonds and a small proportion in the latter. Therefore, 85% in stocks and 15% in stocks and cash equivalents would be ideal.