Final answer:
Your risk tolerance for investing should be based on your time horizon and need for the money. This aligns with the trade-off between potential returns and associated risks of investments like bonds, stocks, and mutual funds. Your stage in life and financial goals greatly influence this balance. The correct option is b. Your time horizon and when you will need access to the money and option c. Your stocks and bonds
Step-by-step explanation:
Your risk tolerance for investing should be determined by your time horizon and when you will need access to the money. This is because investing is fundamentally about the trade-off between return and risk, and these factors can change depending on how long you plan to invest and when you will need the funds. For example, during the early part of your career, you may be able to tolerate a higher level of risk since you have a longer time horizon for your investments to recover from any downturns. As you get closer to needing the money, such as nearing retirement, you might shift towards lower-risk investments.
To elaborate, when analyzing investments such as bonds, stocks, and mutual funds, one must consider the expected rate of return, risk, and liquidity. The expected rate of return refers to the likely income from an investment, whereas risk is associated with the uncertainty of this return coming to fruition. Investments that have the potential for higher returns often come with a greater level of risk. It is essential to find a balance that aligns with your financial goals and comfort with potential losses.
The correct option is b. Your time horizon and when you will need access to the money and option c. Your stocks and bonds