NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesMedium
A client, aged 30, has recently received a significant inheritance and wants to invest it for aggressive long-term growth. They have a high risk tolerance and understand that their portfolio may experience significant fluctuations. Which of the following asset allocations would be most appropriate for this client?
- A20% bonds, 80% equities.
- B60% bonds, 40% equities.
- C100% money market funds.
- D80% bonds, 20% equities.
Show answer & explanationAnswer & explanation
Correct answer: A. 20% bonds, 80% equities.
For a young client with a high risk tolerance and a goal of aggressive long-term growth, a portfolio heavily weighted towards equities (like 80%) is generally appropriate. Equities offer higher growth potential over the long term, though with greater volatility, which the client is willing to accept.
Why the other options are wrong
- B. This is a moderate allocation, not aggressive enough for the client's stated goals and risk tolerance.
- C. Money market funds are extremely conservative and offer minimal growth, completely unsuitable for aggressive growth.
- D. This allocation is too conservative for aggressive long-term growth and high risk tolerance.
Growth-Oriented Asset Allocation
An investment strategy focused on maximizing long-term capital appreciation, typically characterized by a higher allocation to equities and other growth-oriented assets, suitable for investors with a long time horizon and high risk tolerance.
- High allocation to equities.
- Focus on capital appreciation.
- Suitable for long time horizons.
- Requires high risk tolerance.
Memory trick: Growth means 'Go for Equities', while Safety means 'Stay with Bonds'.