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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Planning Basics

Mrs. Anita Rao, aged 58, is risk-averse and plans to retire in two years. Her portfolio is currently 85% in equity. Which recommendation by her adviser is most consistent with sound retirement planning principles?

The adviser should gradually reduce equity exposure and move toward lower-risk assets as retirement nears. Her short horizon and risk-averse profile limit her ability to recover from losses, so raising or ignoring equity risk would be inappropriate.

  1. ARaise the equity allocation further to catch up on her corpus
  2. BGradually reduce equity exposure and shift towards lower-risk assets as retirement nearsCorrect
  3. CMove the entire portfolio to equity after retirement to beat inflation
  4. DKeep the allocation unchanged regardless of age and risk tolerance

Explanation

Near retirement, the ability to recover from losses falls, so exposure to volatile assets is generally reduced gradually, in line with her risk-averse profile. Raising equity increases sequence-of-returns risk. Going fully into equity after retirement or ignoring age ignores her risk profile and horizon.

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