Washington Life Producer Practice Exam

An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in?

1. Risk avoidance

2. Risk retention

3. Risk transfer

4. Risk reduction

The correct answer is: Risk avoidance

Engaging in risk avoidance refers to a strategy where an individual takes steps to completely eliminate exposure to risk. In this case, by choosing to never purchase stocks, the individual is effectively avoiding the risk associated with stock market fluctuations and the potential for financial loss that comes with investing in stocks. This is a proactive approach that seeks to eliminate any potential for loss, rather than simply managing or mitigating that risk. Risk retention would involve accepting the risk and its potential consequences, while risk transfer refers to shifting the risk to another entity, such as through insurance. Risk reduction typically involves strategies to minimize the impact of risk rather than eliminating it entirely. Hence, the option that best describes the individual's approach of completely avoiding the risk of losing money in the stock market is risk avoidance.