Question

Making financial decision's

Jack is a 40-year-old construction worker. He makes $33,500 per year. He only saves 5 percent of his salary per year since it is all he feels he can afford. His friend Joe suggests that he invest his money conservatively so that it won’t lose as much value if the market takes a nosedive. His other friend Jim thinks that investing aggressively with high risk is the way to go since Jack has several years to work to make up for any losses.

The question is: What do you suggest to jack?

**I'm not sure how I should be looking at this question. If you could provide bullet points to focus my learning or short response to the question, or an answer you found else were would truly help.**

Answer 1

Ans) To answer this question we need to know more about jack, hence we will ask him about his retirement plans
we will ask him about his past savings or debt he had to pay
If he has good past saving & would retire after 20 years at the age of 60:
He could invest more into stocks & less in govt. secuties. that is he could take more risk
But if he had less past saving & more debt, he should focus on how early he could pay back his debt & invest in less riskier securities like govt. bonds, PF etc.
If he has no saving & no debt & will work till 60
he could invest in both riskier (equity) & less riskier (Govt. bonds) securities, depending upon his appetite for risk
In my opinion he should go like (80-40) 20% in riskier securities like stock market & 80% in less riskier securities.
here we take 80-40 while assuming he will live up to 80 & his current age is 40
You can make your model based on that.