NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesMedium
A client is seeking to invest in a portfolio that aims to generate current income while preserving capital. They have a low-to-moderate risk tolerance and prefer investments with relatively stable values. Which of the following portfolio management strategies would be most appropriate?
- AIncome strategy.
- BMarket timing strategy.
- CGrowth strategy.
- DAggressive growth strategy.
Show answer & explanationAnswer & explanation
Correct answer: A. Income strategy.
An income strategy focuses on generating regular income through investments like bonds, preferred stocks, and dividend-paying common stocks, while prioritizing capital preservation and stability, which aligns with the client's low-to-moderate risk tolerance and desire for stable values.
Why the other options are wrong
- B. A market timing strategy is speculative, attempts to predict market movements, and does not inherently focus on income generation or capital preservation.
- C. A growth strategy emphasizes capital appreciation and typically involves higher risk, not suitable for capital preservation and stable values.
- D. An aggressive growth strategy is high-risk, focused purely on capital appreciation, and antithetical to capital preservation.
Income Strategy
A portfolio management approach focused on generating regular income through investments such as bonds, preferred stocks, and high-dividend common stocks, often prioritizing capital preservation.
- Primary goal: regular income.
- Secondary goal: capital preservation.
- Suitable for conservative investors or those needing cash flow.
- Invests in fixed-income, preferred stocks, dividend stocks.
Memory trick: Income strategy: steady cash flow, watch your portfolio glow!