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 express a desire for high current income and are willing to accept a moderate level of risk to achieve this. Which of the following portfolios would be most suitable for this client?
- AAll long-term zero-coupon bonds
- B80% Growth Equities, 20% High-Yield Bonds
- C60% Investment-Grade Bonds, 30% Dividend Stocks, 10% Preferred Stocks
- D50% Small-Cap Growth Funds, 50% International Equities
Show answer & explanationAnswer & explanation
Correct answer: C. 60% Investment-Grade Bonds, 30% Dividend Stocks, 10% Preferred Stocks
This portfolio emphasizes income-generating assets (investment-grade bonds, dividend stocks, preferred stocks) with a moderate risk profile, which aligns with a retired client's need for high current income and willingness to accept moderate risk. Growth equities and small-cap funds are too aggressive, and zero-coupon bonds provide no current income.
Why the other options are wrong
- A. Zero-coupon bonds provide no current income, making them unsuitable for this client's primary objective.
- B. Too aggressive for a retired client relying on income; growth equities provide little current income.
- D. Too aggressive and growth-oriented for a retired client needing current income.
Income-Oriented Asset Allocation (Moderate Risk)
An asset allocation strategy designed for investors seeking high current income with a moderate level of risk, typically achieved through a blend of investment-grade bonds, high-dividend stocks, and preferred stocks.
- Primary objective: current income
- Risk tolerance: moderate
- Asset classes: investment-grade bonds, dividend stocks, preferred stocks
- Suitable for retirees or those needing consistent cash flow
Memory trick: Income needs a steady flow, not a growth spurt.