Question

A distributor recommends rebalancing a client's portfolio from 80% equity to 60% equity as the client approaches retirement in 3 years. This is an example of:

Accepted Answer

Appropriate lifecycle-based portfolio management — reducing risk as the goal nears to protect accumulated corpus — Reducing equity allocation as a major financial goal approaches is sound lifecycle portfolio management. With 3 years to retirement, a large market fall could devastate the corpus if equity is at 80%. Shifting to 60% equity and 40% debt reduces sequence-of-return risk while retaining some growth potential.