Canadian Securities Course (CSC) Level 2 Practice Exam

Which stage of life focuses on inheritance and less risky investments according to the life-cycle hypothesis?

1. Early earning years

2. Mature earning years

3. Retired

4. Nearing retirement

The correct answer is: Retired

The stage of life that focuses on inheritance and less risky investments, according to the life-cycle hypothesis, is indeed aligned with the retired phase. At this point, individuals typically shift their financial priorities. The focus generally moves away from aggressive growth strategies that may have been employed during earlier earning years, towards preserving capital and generating a stable income stream, as they no longer have a regular paycheck from employment. Individuals in retirement are concerned about maintaining their financial security, ensuring their savings last throughout their retirement, and potentially passing on any wealth to heirs. This leads to a preference for less risky investments, such as fixed-income securities or conservative assets, which protect against market volatility and help in managing long-term financial needs. In earlier stages of life, such as early earning years, mature earning years, or nearing retirement, the investment strategy may still involve a higher degree of risk tolerance to accumulate wealth, rather than focusing on inheritance and conservative investment approaches.