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 has a significant pension providing a stable income. They are seeking additional growth for their portfolio but want to maintain a moderate level of risk. Which asset allocation strategy would be most suitable?
- A80% equities, 20% fixed income
- B40% equities, 60% fixed income
- C20% equities, 80% fixed income
- D60% equities, 40% fixed income
Show answer & explanationAnswer & explanation
Correct answer: D. 60% equities, 40% fixed income
Given the client's stable pension, they can afford to take on more risk for growth than someone solely reliant on their portfolio for income. A 60% equities, 40% fixed income allocation provides a balance between growth potential and moderate risk.
Why the other options are wrong
- A. This is typically too aggressive for a retired individual, even with a pension, seeking moderate risk.
- B. This is typically too conservative for a client seeking additional growth, even with a moderate risk tolerance.
- C. This allocation is very conservative, primarily focused on income and capital preservation, not suitable for additional growth.
Retired Income & Growth Suitability (Moderate Risk)
For retired clients with stable income from other sources (e.g., pension), a moderate risk allocation can include a higher proportion of equities for growth while balancing with fixed income.
- Stable income source reduces need for portfolio income.
- Moderate risk allows for growth potential.
- Equity exposure for growth, fixed income for stability.
Memory trick: Pension-backed retirees can dial up growth to a moderate 60/40.