NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesMedium
A 35-year-old client with a high-paying job and no immediate need for funds is seeking advice for long-term growth. They are comfortable with market fluctuations and understand the potential for short-term losses in pursuit of higher returns. Which of the following asset allocations would be most suitable?
- A20% bonds, 80% equities
- B100% money market funds
- C60% bonds, 40% equities
- D80% bonds, 20% equities
Show answer & explanationAnswer & explanation
Correct answer: A. 20% bonds, 80% equities
A young client with a long time horizon, high income, and comfort with risk is best suited for an aggressive growth portfolio, which typically means a higher allocation to equities (stocks) and a lower allocation to fixed income (bonds). 20% bonds, 80% equities fits this profile.
Why the other options are wrong
- B. Money market funds offer no growth potential and are only suitable for very short-term liquidity needs.
- C. This is a moderately conservative allocation, not aggressive enough for the client's profile.
- D. This is too conservative for a client with a long time horizon and high risk tolerance.
Asset Allocation for Growth
The process of dividing an investment portfolio among different asset categories (e.g., stocks, bonds, cash) to align with a client's long-term growth objectives and higher risk tolerance.
- Typically involves a higher percentage of equities.
- Suitable for younger investors with longer time horizons.
- Aims to maximize capital appreciation over time.
Memory trick: Risk tolerance and time horizon steer the asset allocation destination.