Question

Post-assessment question 10 of 10: Shonda used to be a nurse but now babysits her grandchildren a few times a week. Recently, she and her husband sold their house and moved into a smaller apartment to save money. Her investment risk tolerance is very low. What is most likely her current financial stage?

Answer 1

Shonda is likely in the 'Preservation' or 'Retirement' financial stage, focusing on low-risk investments to protect her accumulated wealth. As she is past the wealth accumulation phase of life, her investment strategy should be conservative, matching her very low risk tolerance.

Step-by-step explanation:

Shonda's current financial stage, given her very low investment risk tolerance, downsizing of living space, and retirement activities, is likely the 'Preservation' or 'Retirement' phase. This stage is characterized by a shift towards preserving the capital that has been accumulated over the years, rather than seeking high returns with high risk. It is common for investment risk tolerance to change over one's lifetime. During the early part of a career, a person might have higher risk tolerance with the aim of growing their wealth, whereas in retirement, the focus usually shifts to preserving wealth and ensuring a steady income.

Considering Shonda's stage in life, where she is not actively working full-time, has taken the step to minimize living expenses, and is focused more on family, her investment strategy should be conservative. This is to protect her nest egg against potential market downturns and provide a steady income stream for her day-to-day expenses without jeopardizing her financial security. Tangible assets like her house, now sold, provided a moderate return and now serves as an example of a liquidity move, turning her capital gain into cash that she can use more freely in her retirement years.

Answer 2

Shonda is most likely in the retirement or post-retirement stage of her financial life, opting for secure investments due to her very low risk tolerance.

Step-by-step explanation:

Considering Shonda's current situation, where she is no longer working full-time and has moved into a smaller apartment to save money, her investment risk tolerance is very low, and she is engaging in family care as well as other community activities, it seems that Shonda is most likely in the retirement or post-retirement stage of her financial life. At this stage, individuals tend to shift towards more secure and stable investments to preserve their capital and ensure they have a steady income without taking on too much risk. This is in contrast to earlier life stages such as the early career phase, where individuals may be encouraged to take on higher risk for potentially higher returns as they have more time to recover from any financial setbacks.