Hi All,
Was doing the Brown Topic Test and Question 4 had me a little confused.
The question pertains to a individual that states
“I believe I can only reach these goals by maximizing my investment returns, but I am apprehensive that too high of a level of risk could jeopardize our retirement assets. Because of that, I would like to keep the retirement portion of assets separated from the rest of the portfolio in its own account, which would be invested less aggressively.”
The advisor suggests putting assets into different buckets to achieve different buckets to address the time horizon and risk tolerance of your specific financial goals by taking advantage of his.
The question asks if the advisor has most likely address the invdividual’s concerns by the following:
A - Loss Aversion by constructing multiple portfolios with different risk tolerances
B - Desire for regret avoidance in order to convince him to use and asset only approach
C - Tendancy towards mental accounting by suggesting and asset liability approach
The correct answer is C, for which I get the mental accounting part of the question, but is using a goal based investment allocation automatically asset liability approach?
I got tripped up by this given answer the second part of answer A seemed to describe the goal based approach.
Thanks.