An individual who removes risk by never purchasing stocks is engaging in

• A. risk retention
• B. risk avoidance
• C. risk transfer
• D. risk reduction

Answer: (B)

Avoiding risk by not engaging in the activity that carries it is risk avoidance. In investing, choosing never to buy stocks eliminates exposure to stock market fluctuations altogether, so the risk is removed rather than mitigated or shifted.

This differs from risk reduction (which would involve still investing but using methods to lessen potential losses, such as diversification), risk transfer (shifting risk to someone else through hedging or insurance-type strategies), or risk retention (accepting and bearing the potential losses yourself).