NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 62, is retired and relies solely on their investment portfolio for income. They express a strong desire to preserve capital but also need to generate a consistent income stream. Which of the following investment strategies would be most appropriate for this client?
- ATactical asset allocation strategy with frequent sector rotations based on short-term market trends.
- BAggressive growth portfolio focused on emerging market equities.
- CSpeculative portfolio investing primarily in cryptocurrency and venture capital.
- DBalanced portfolio with a significant allocation to high-quality fixed-income securities and dividend-paying stocks.
Show answer & explanationAnswer & explanation
Correct answer: D. Balanced portfolio with a significant allocation to high-quality fixed-income securities and dividend-paying stocks.
A retired client focused on capital preservation and consistent income needs a conservative approach. A balanced portfolio with a strong emphasis on fixed-income and dividend stocks provides stability and income.
Why the other options are wrong
- A. Frequent trading and short-term trends introduce excessive risk and are not suitable for capital preservation.
- B. Aggressive growth is unsuitable for a retired client needing income and capital preservation.
- C. Speculative investments are too risky for a retired client relying on their portfolio for income.
Income-Focused Portfolio
An investment strategy designed to generate regular cash flow for the investor, often prioritizing stability and capital preservation over aggressive growth.
- Suitable for retirees or those needing consistent income.
- Typically allocates heavily to bonds, preferred stocks, and dividend-paying equities.
- Focuses on lower volatility and predictable returns.
Memory trick: Income needs a steady stream, safety is the dream.