NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 30, has recently received a significant inheritance and is looking to invest for long-term growth. They have a high risk tolerance and are comfortable with market fluctuations. Their primary goal is capital appreciation. Which of the following asset allocations would be most appropriate for this client?
- A40% bonds, 60% equities
- B20% bonds, 80% equities
- C80% bonds, 20% equities
- D60% bonds, 40% equities
Show answer & explanationAnswer & explanation
Correct answer: B. 20% bonds, 80% equities
A client with a long-term horizon, high risk tolerance, and a primary goal of capital appreciation should have a higher allocation to equities, as equities historically offer greater growth potential but also higher volatility.
Why the other options are wrong
- A. This allocation is still somewhat balanced; a higher equity weighting is better suited for aggressive growth.
- C. This allocation is too conservative for a client seeking long-term growth with high risk tolerance.
- D. This allocation is moderate and less aggressive than appropriate for a client prioritizing capital appreciation with high risk tolerance.
Growth-Oriented Asset Allocation
An investment strategy focused on maximizing capital appreciation over the long term, typically involving a higher allocation to equities.
- Suitable for investors with long time horizons.
- Requires a higher risk tolerance.
- Emphasizes assets with higher growth potential, like stocks.
Memory trick: Growth means Go for stocks, Safety means Stay with bonds.