Ms. Chen, a 50-year-old business owner, has historically maintained an 'Aggressive Growth' risk profile. Recently, she started considering delegating more of her business management and is planning for a potential semi-retirement in 5-7 years, which would significantly reduce her active income. Her portfolio manager is conducting an annual review. What change in her risk profile is most likely occurring, and how should it influence her portfolio strategy?

Question: Ms. Chen, a 50-year-old business owner, has historically maintained an 'Aggressive Growth' risk profile. Recently, she started considering delegating more of her business management and is planning for a potential semi-retirement in 5-7 years, which would significantly reduce her active income. Her portfolio manager is conducting an annual review. What change in her risk profile is most likely occurring, and how should it influence her portfolio strategy?

Answer options:

• Her risk profile is likely shifting towards 'Conservative' due to reduced active income, requiring a significant reduction in equity exposure. ✅ Her risk profile is likely evolving towards 'Moderate Growth' or 'Balanced' as her time horizon for active income generation shortens, necessitating a gradual de-risking strategy.
• Her risk profile remains 'Aggressive Growth' because semi-retirement doesn't preclude significant market returns in the interim.
• Her risk profile is increasing due to the additional free time she will have, allowing for greater engagement with market volatility.

Correct answer: Her risk profile is likely evolving towards 'Moderate Growth' or 'Balanced' as her time horizon for active income generation shortens, necessitating a gradual de-risking strategy.

Explanation: As Ms. Chen approaches semi-retirement and her active income sources are expected to decrease, her capacity for risk typically diminishes, leading to a shift from an 'Aggressive Growth' to a 'Moderate Growth' or 'Balanced' profile. This warrants a gradual de-risking to protect capital and align with her evolving financial goals.