FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, age 68, is retired and relies on their investment portfolio for income. They express a desire to invest a portion of their savings in a product that offers stability and a predictable stream of income, with minimal risk to principal. Which of the following would be the MOST suitable recommendation?
- AA sector-specific equity ETF
- BA diversified portfolio of blue-chip growth stocks
- CA high-yield corporate bond fund
- DA U.S. Treasury bond fund
Show answer & explanationAnswer & explanation
Correct answer: D. A U.S. Treasury bond fund
A U.S. Treasury bond fund offers high stability and a predictable income stream with minimal risk to principal, aligning perfectly with a retired client's need for income and capital preservation.
Why the other options are wrong
- A. Sector-specific equity ETFs are concentrated in a single industry, increasing risk and volatility, making them unsuitable for a client prioritizing stability and minimal risk.
- B. Blue-chip growth stocks prioritize capital appreciation over income and carry market risk, making them unsuitable for a retired client relying on income with minimal risk.
- C. High-yield corporate bond funds (junk bonds) carry significant credit risk and are unsuitable for a client seeking stability and minimal risk to principal.
Income-Oriented Suitability
For clients relying on investment income with minimal risk to principal, suitable investments typically include high-quality bonds, conservative bond funds, or other low-volatility income-generating assets.
- Focus on principal preservation
- Prioritize predictable income streams
- Low risk tolerance
- Examples: Treasury bonds, high-grade corporate bonds, money market instruments
Memory trick: Income Stability needs PRUDENT, PREDICTABLE, PROTECTED investments.