The biggest constraint on an investor’s ability to diversify and manage risk is their financial capacity (affordability).
Why is Option B Correct?
Investing requires capital, and affordability limits how much risk an investor can take.
A client with low disposable income may not be able to diversify across multiple asset classes.
Why Not Other Options?
A (Age) → Age affects time horizon, but affordability is a direct constraint.
C (Risk aversion) → Risk aversion affects investment choices, not the ability to invest.
D (Tax implications) → Tax affects returns but does not prevent investment.
???? Reference: CFA Institute (Investment Constraints), CISI Wealth & Investment Management.
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