A portfolio manager is constructing a diversified portfolio for a 60-year-old client who is five years away from retirement. The client prioritizes capital preservation and a moderate income stream. Which asset allocation strategy would generally be most appropriate?

Question: A portfolio manager is constructing a diversified portfolio for a 60-year-old client who is five years away from retirement. The client prioritizes capital preservation and a moderate income stream. Which asset allocation strategy would generally be most appropriate?

Answer options:

• 70% Equities, 30% Fixed Income
• 50% Equities, 50% Fixed Income ✅ 20% Equities, 80% Fixed Income
• 100% Equities

Correct answer: 20% Equities, 80% Fixed Income

Explanation: Given the client's proximity to retirement and emphasis on capital preservation and moderate income, a higher allocation to fixed income (80%) is appropriate to reduce portfolio volatility and provide income, aligning with a conservative risk profile.