FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, a 28-year-old single professional with a high income and no dependents, is looking for an investment strategy focused on aggressive capital appreciation over the long term. They have a very high risk tolerance and are comfortable with significant market volatility. Which of the following asset allocations would be MOST suitable for this client?
- A50% Fixed Income, 50% Equities
- B100% Money Market Funds
- C20% Fixed Income, 80% Equities
- D70% Fixed Income, 30% Equities
Show answer & explanationAnswer & explanation
Correct answer: C. 20% Fixed Income, 80% Equities
Given the client's young age, high income, no dependents, very high risk tolerance, and long-term goal of aggressive capital appreciation, a portfolio heavily weighted towards equities (like 80% equities, 20% fixed income) is most suitable. This allocation maximizes growth potential while acknowledging some minimal need for diversification.
Why the other options are wrong
- A. A 50/50 allocation is balanced but not 'aggressive' enough for the client's stated goals and risk tolerance.
- B. 100% money market funds are extremely conservative, offering no growth potential and are entirely unsuitable for a client seeking 'aggressive capital appreciation'.
- D. This allocation is too conservative for a client seeking 'aggressive capital appreciation' with a 'very high risk tolerance' and a long-term horizon.
Aggressive Growth Asset Allocation
An investment strategy characterized by a high percentage of equities, typically for clients with long-term horizons and high risk tolerance seeking maximum capital appreciation.
- High allocation to equities (e.g., 70-100%).
- Suitable for long-term goals.
- Requires high risk tolerance.
Memory trick: Risk Rises, Equities Rule