Final answer:
Janelle's asset allocation should balance the high returns of stocks with her risk aversion, likely starting with diversified mutual funds and adjusting over time. The exact allocation depends on her financial situation, risk tolerance, and retirement timeline, taking into account the fluctuating nature of stock investments.
Step-by-step explanation:
While it is true that stocks have the highest returns over the long-term, they also come with higher risk, especially in the short-term where their value can fluctuate significantly. For someone like Janelle, who is extremely risk-averse, it's important to balance the potential high returns of stocks with her comfort level regarding risk. A recommended approach for Janelle to ease into owning stocks might be to start by investing a portion of her retirement savings in diversified mutual funds, which pool money from many investors to buy a large portfolio of stocks or other securities, thereby reducing the risk that comes with owning individual stocks.
Additionally, as she becomes more comfortable with the market's ups and downs, Janelle can gradually increase her stock holdings. An asset allocation that includes a mix of stocks, bonds, and potentially other assets like real estate or commodities, can help Janelle manage risk and work towards her long-term financial goals. The exact allocation should be tailored to Janelle's individual financial situation, risk tolerance, and retirement timeline. This underscores the importance of considering the tradeoffs between risk and return relative to an investor's life stage.