Question

"An individual who is 25 years from retirement has $500,000 to invest today. He is risk tolerant and is looking to withdraw $80,000 per year once he retires. Which asset allocation is BEST for this client?"

Answer 1

The available options are:

A. 25% Stocks / 25% Bonds / 25% REITs / 25% Money Markets

B. 50% Stocks / 40% Bonds/ 10% Cash

C. 100% Bonds

D. 100% Stocks

Answer:

B. 50% Stocks / 40% Bonds/ 10% Cash

Step-by-step explanation:

Since the age of the customer is not given in the question, however, given he or she is 25 years from retirement, it is logical to assume that the customer is about 40-50 years old in age. According to the rule of thumb that "100% minus the customer's age" should be allocated to stocks for growth, hence, a stock allocation of 40-50% is about right.

Hence, in this case, the right answer is Option B: 50% Stocks / 40% Bonds/ 10% Cash