Canadian Securities Course (CSC) Level 2 Practice Exam

During which life cycle stage do investors become more risk averse as they approach retirement?

1. Early earning years

2. Family commitment years

3. Mature earning years

4. Retired

The correct answer is: Retired

Investors typically become more risk averse as they approach retirement because they start to prioritize the preservation of their capital over the potential for growth. This shift in mindset is driven by the desire to secure their savings for retirement spending, as they may not have enough time to recover from significant market downturns. As retirement nears, individuals often focus on maintaining financial stability, which makes them less inclined to invest in high-risk assets that could jeopardize their savings. In earlier life cycle stages, such as during the early earning years or family commitment years, investors are generally more willing to take on risk for the chance of higher returns, as they have more time to recover from any potential investment losses. In the mature earning years, while investors may start considering a shift towards more conservative investments, the most pronounced change in risk aversion occurs as they reach retirement.