Sophia, aged 60, plans to retire in 5 years. She currently holds a portfolio heavily weighted towards growth-oriented Canadian small-cap equities. While she has enjoyed strong returns historically, she is now concerned about preserving capital as her retirement date approaches. Her advisor should emphasize which of the following concerning her time horizon?

Question: Sophia, aged 60, plans to retire in 5 years. She currently holds a portfolio heavily weighted towards growth-oriented Canadian small-cap equities. While she has enjoyed strong returns historically, she is now concerned about preserving capital as her retirement date approaches. Her advisor should emphasize which of the following concerning her time horizon?

Answer options:

• That her current diversified portfolio is suitable, as past performance suggests continued strong growth. ✅ That a shorter time horizon typically necessitates a shift towards investments with lower volatility to protect accumulated capital.
• That investing in riskier assets for the next five years could significantly boost her retirement savings.
• That she should leverage her portfolio to enhance returns before retirement.

Correct answer: That a shorter time horizon typically necessitates a shift towards investments with lower volatility to protect accumulated capital.

Explanation: As an investor's time horizon shortens, the ability to recover from significant market downturns diminishes. Therefore, suitability dictates a shift towards lower-volatility, capital-preservation-focused investments to protect the accumulated wealth needed for retirement.