When do individuals typically have the highest investment risk tolerance?

• A. During periods of economic recession
• B. At retirement, when they rely on investments for income
• C. At a younger age, when they have a longer investment horizon
• D. Immediately before a major financial goal, such as buying a house

Answer: (C)

Verified step by step guidance

1. Understand the concept of investment risk tolerance: Risk tolerance refers to an individual's ability and willingness to endure fluctuations in the value of their investments. It is influenced by factors such as age, financial goals, and economic conditions.
2. Recognize the relationship between age and investment horizon: Younger individuals typically have a longer investment horizon, meaning they have more time to recover from potential losses. This allows them to take on higher-risk investments, such as stocks, which may offer higher returns over time.
3. Consider the impact of major financial goals: Immediately before a major financial goal, such as buying a house, individuals tend to have lower risk tolerance because they need to preserve their capital for the upcoming expense.
4. Evaluate the role of economic conditions: During periods of economic recession, individuals often become more risk-averse due to uncertainty and potential financial instability.
5. Understand the financial situation at retirement: At retirement, individuals rely on their investments for income and typically shift to lower-risk investments to ensure stability and avoid significant losses.