Which of the following is a fundamental principle of retirement planning?

Diversifying investments across multiple asset classes is a fundamental principle of retirement planning because it helps manage risk and optimize returns over time. By spreading investments across various asset classes—such as stocks, bonds, real estate, and cash—an individual can reduce the impact of volatility in any single asset or sector on their overall portfolio. This strategy is significant for retirement planning, as individuals need to consider their long-term financial goals, which often span several decades.

Effective diversification also helps to balance potential growth opportunities with risk management. During different market conditions, some asset classes may perform better than others, and a well-diversified portfolio can provide a smoother ride during economic fluctuations. This approach aligns with the principles of asset allocation, which aim to balance the risk and return of investment options tailored to an individual's risk tolerance and retirement timeline. Thus, diversification is a cornerstone of a sound retirement strategy, allowing for growth while simultaneously protecting against significant losses.

Other options, while they may seem appealing in isolation, do not align with the principles of prudent retirement planning. For instance, maximizing spending during earning years can lead to insufficient savings for retirement. Minimizing savings for extra spending jeopardizes future financial security. Focusing solely on stocks may expose an individual to excessive market risk without the