FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsEasy
A registered representative is discussing investment options with a new client. The client expresses a primary objective of maximizing current income while maintaining a low-to-moderate risk tolerance. Which of the following investment recommendations would be MOST suitable for this client?
- AA leveraged inverse ETF.
- BA bond fund investing primarily in investment-grade corporate bonds.
- CA growth-oriented equity mutual fund.
- DA sector-specific equity exchange-traded fund (ETF).
Show answer & explanationAnswer & explanation
Correct answer: B. A bond fund investing primarily in investment-grade corporate bonds.
The client's primary objective is current income with low-to-moderate risk. Bond funds, particularly those investing in investment-grade corporate bonds, are designed to provide income and generally carry lower risk than equity-based investments.
Why the other options are wrong
- A. Leveraged inverse ETFs are highly speculative, extremely risky, and unsuitable for a low-to-moderate risk tolerance.
- C. Growth-oriented equity funds prioritize capital appreciation and typically have higher risk, not current income.
- D. Sector-specific ETFs are concentrated investments with higher risk and focus on growth within a specific industry, not primarily income.
Income-Oriented Investments
Investments designed to generate regular income payments rather than significant capital appreciation.
- Common examples include bonds, bond funds, and dividend-paying stocks.
- Generally suitable for investors prioritizing current income and capital preservation.
- Risk levels can vary, but typically lower than growth-oriented investments.
Memory trick: Income's safe, growth takes flight, risk is a balance, day and night.