A customer with a 2-year horizon and a preservation objective asks why she should avoid a high-volatility product. The most accurate response is:
Correct answer: C. The concern is timing. A drawdown near the withdrawal point may not have enough time to recover, so volatile products are not suitable for short horizons with firm withdrawal deadlines.
Why not the others?
- A (because volatile products always lose money): Volatile products do not always lose money; they can produce high returns. The issue is timing.
- B (because the SEC prohibits short-horizon customers from holding volatile products): There is no such prohibition. The recommendation is driven by suitability, not an SEC rule.
- D (because volatile products cost more than non-volatile ones): Cost is separate from volatility. The concern is horizon mismatch, not fees.