NASAA Series 66 Uniform Combined State Law ExaminationInvestment Vehicle CharacteristicsMedium
A client inherited a substantial sum of money and is seeking an investment vehicle that offers tax-deferred growth, professional management, and a guaranteed death benefit. They are also concerned about outliving their assets. Which of the following investment vehicles would be most suitable for this client's needs?
- AA diversified portfolio of common stocks and bonds.
- BA variable annuity.
- CA municipal bond fund.
- DA real estate investment trust (REIT).
Show answer & explanationAnswer & explanation
Correct answer: B. A variable annuity.
A variable annuity offers tax-deferred growth, professional management through subaccounts, a guaranteed death benefit, and the option for annuitization to provide income for life, addressing the concern about outliving assets. The other options do not combine all these features.
Why the other options are wrong
- A. While offering professional management and growth potential, it lacks tax-deferred growth, guaranteed death benefit, and annuitization features.
- C. Municipal bond funds offer tax-exempt income, but lack growth potential, a death benefit, and annuitization.
- D. REITs offer income and growth, but lack tax-deferred growth, a guaranteed death benefit, and annuitization.
Variable Annuity
A contract with an insurance company designed to provide income during retirement. It offers investment options (subaccounts), tax-deferred growth, a death benefit, and the ability to annuitize for guaranteed income.
- Investment performance varies based on subaccount choices.
- Subject to market risk, unlike fixed annuities.
- Often includes riders for enhanced benefits like guaranteed minimum withdrawal benefits (GMWB).
Memory trick: Annuities are a secure way to nurture your nest egg.