A client, Maria, expresses concern about the volatility of her investment portfolio, which primarily consists of a single Canadian equity fund. She frequently checks her account and gets anxious when market values decline, even temporarily. Her advisor reviews her risk tolerance and long-term financial goals which include retirement in 20 years. Which of the following strategies would best help mitigate Maria's short-term volatility concerns while remaining consistent with her long-term objectives?

Question: A client, Maria, expresses concern about the volatility of her investment portfolio, which primarily consists of a single Canadian equity fund. She frequently checks her account and gets anxious when market values decline, even temporarily. Her advisor reviews her risk tolerance and long-term financial goals which include retirement in 20 years. Which of the following strategies would best help mitigate Maria's short-term volatility concerns while remaining consistent with her long-term objectives?

Answer options: ✅ Recommending the addition of a Canadian bond fund and a global equity fund to her existing portfolio.

• Suggesting she move all her investments into a guaranteed investment certificate (GIC) for the next 5 years.
• Advising her to switch to an inverse exchange-traded fund (ETF) to profit from market downturns.
• Encouraging her to check her portfolio less frequently and ignore daily market fluctuations.

Correct answer: Recommending the addition of a Canadian bond fund and a global equity fund to her existing portfolio.

Explanation: Adding a Canadian bond fund and a global equity fund introduces diversification, which helps reduce overall portfolio volatility (standard deviation) without abandoning her long-term growth potential. Diversification spreads risk across different asset classes and geographies, making the portfolio less sensitive to the performance of any single investment.