The life-cycle theory of asset allocation proposes that as investors progress through life, their:
A) asset allocation should change to meet changing needs.
B) earnings increase in their 20s, reach a peak at about age 45, then decline.
C) assets must grow geometrically in order to achieve reasonable goals.
D) asset allocation should remain fixed in order to avoid short-sighted adjustments.

Question

Quizplus · Accepted Answer

The life-cycle theory of asset allocation suggests that investors should adjust their asset allocation over time to reflect changes in risk tolerance, investment horizon, and financial needs as they age. This typically means a shift from higher-risk investments (like stocks) to lower-risk investments (like bonds) as one gets closer to retirement.

The Life-Cycle Theory of Asset Allocation Proposes That as Investors