Advanced Diploma of Financial Planning (ADFP) Practice Test

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Prepare for the Advanced Diploma of Financial Planning Test. Study with interactive quizzes and comprehensive questions, each offering detailed explanations and insights. Gear up for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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What investment strategy is typically recommended to balance risk as retirees age?

Increasing stocks exposure
Maintaining fixed-income focus
Rebalancing the portfolio frequently
Shifting from risky to safe assets

The correct answer is: Shifting from risky to safe assets

The strategy of shifting from risky to safe assets is widely recommended for retirees as they age due to the need for preserving capital and ensuring a stable income stream in retirement years. As individuals near or enter retirement, their capacity to absorb losses diminishes because they typically rely on their investment portfolio to fund their living expenses. Transitioning assets towards safer investments, such as bonds and other fixed-income securities, helps to mitigate the impact of market volatility, thereby protecting the portfolio's value. Moreover, safer assets generally provide more predictable returns, which align well with the need for consistent cash flow in retirement. This approach helps retirees manage the risk associated with market fluctuations while ensuring that their financial needs are met without undue stress related to investment performance. By moving towards these safer assets, retirees can maintain their standard of living even during periods of economic downturns, making this strategy a prudent choice as they age.