Eoin's strategy of switching from a cash fund to an equity fund over time is intended to mitigate which risk?

• A. Timing
• B. Counterparty
• C. Inflation
• D. Expense

Answer: (A)

Eoin's strategy of transitioning from a cash fund to an equity fund is primarily aimed at mitigating the timing risk, which is associated with the uncertainty of when to buy or sell investments. Timing risk can occur if an investor remains in cash during a period when the stock market is performing well, potentially missing out on significant capital growth. By switching to an equity fund over time, Eoin aligns his investment strategy with a more dynamic approach that capitalizes on market movements and seeks to achieve higher returns over a longer investment horizon.

This strategy may involve a gradual increase in equity exposure, allowing for the benefits of compounding returns while reducing the potential for significant losses that can occur from market timing mistakes. Therefore, such a strategy helps in managing the risk that comes from the investor's potential misjudgment of market conditions when attempting to time the market.

The other risks mentioned, such as counterparty risk, inflation risk, and expense risk, are not directly addressed by switching from cash to equity. Counterparty risk relates to the possibility that another party involved in a financial transaction may default on their obligation, while inflation risk is the danger that inflation will erode purchasing power, which might warrant a different investment focus. Expense risk pertains to the costs associated with investing,