Appropriate Asset Allocation for Retirement Planning

Hard Investment Policy And Allocation Asset Allocation

Maria is a financial advisor who is completing an investment policy statement (IPS) for her client, who is 40 years old and plans to retire at 65. The client has a moderate risk tolerance and currently holds a portfolio composed of 70% equities and 30% fixed income. Given the client's investment horizon, risk tolerance, and the potential for future economic conditions, Maria is considering how to advise regarding asset allocation moving forward.

In light of these factors, Maria needs to consider whether to adjust the portfolio towards an allocation that balances growth with risk mitigation, especially as the client approaches retirement. Which of the following asset allocation strategies would be the most appropriate for Maria to recommend at this stage?

Increase the allocation to equities to 80% and reduce fixed income to 20% to maximize growth potential.

Gradually shift towards a more conservative allocation of 60% equities and 40% fixed income to align with the client's risk tolerance.

Maintain the current allocation of 70% equities and 30% fixed income as it fits the client's moderate risk profile.

Hint

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