FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsMedium
A client, age 65, is retired and relies on their investment portfolio for current income. They have a moderately conservative risk tolerance and wish to maintain their purchasing power while generating stable income. Which of the following asset allocations would be MOST suitable for this client?
- A80% Equities, 20% Fixed Income
- B60% Equities, 40% Fixed Income
- C40% Equities, 60% Fixed Income
- D100% Equities
Show answer & explanationAnswer & explanation
Correct answer: C. 40% Equities, 60% Fixed Income
For a retired client relying on income with a moderately conservative risk tolerance, a portfolio heavily weighted towards fixed income (e.g., 60%) with a significant but smaller portion in equities (e.g., 40%) is most suitable. This balance prioritizes stable income and capital preservation while offering some growth potential to combat inflation.
Why the other options are wrong
- A. This allocation is too aggressive for a retired client with a 'moderately conservative' risk tolerance who relies on income.
- B. A 60/40 equity/fixed income portfolio is generally considered moderate, but potentially too aggressive for a 'moderately conservative' client relying on income.
- D. 100% equities is extremely aggressive and completely unsuitable for a retired client relying on income with a conservative risk tolerance.
Income-Oriented Asset Allocation (Moderate Conservative)
An investment strategy for clients seeking stable income and capital preservation, typically with a higher allocation to fixed income than equities.
- Higher allocation to fixed income.
- Suitable for retired clients needing income.
- Moderate to conservative risk tolerance.
Memory trick: Fixed First for Funds & Future