Question

You are a financial advisor. You have a client named Steve that hopes to retire in 10 years. Steve has $400,000 to invest. You have another client named Liz. Liz is young and is hoping to retire in 30 years. She currently has $50,000 to invest. How would you advise Steve to invest.

(a) More conservatively, with a greater allocation to bonds and less to stocks.
(b) More aggressively, with a greater allocation to stocks and less to bonds.
(c) Equally in stocks and bonds.
(d) With a focus on real estate investments.

Answer 1

I would advise Steve to invest more aggressively, with a greater allocation to stocks and less to bonds. He has a shorter time horizon until retirement and can afford to take on more risk for higher potential returns. Diversifying the portfolio with real estate investments is also a consideration.

Step-by-step explanation:

I would advise Steve to invest (b) more aggressively, with a greater allocation to stocks and less to bonds. The reason for this is that Steve only has 10 years until retirement, whereas Liz has 30 years. Stocks tend to have higher long-term returns compared to bonds, but they also come with higher volatility. Given the shorter time horizon, Steve can afford to take on more risk in order to potentially earn higher returns. Additionally, Steve may want to consider diversifying his portfolio with some real estate investments, as they can provide a steady income stream and potential appreciation.