NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A portfolio manager is constructing a portfolio for a client who prioritizes capital preservation and requires immediate access to funds for potential short-term expenses. The client is willing to accept very low returns in exchange for maximum safety and liquidity. Which of the following investment vehicles would be most appropriate?
- AEquity index funds
- BReal estate investment trusts (REITs)
- CLong-term corporate bonds
- DMoney market instruments
Show answer & explanationAnswer & explanation
Correct answer: D. Money market instruments
Money market instruments are highly liquid, offer capital preservation, and are suitable for short-term needs, aligning with the client's priorities.
Why the other options are wrong
- A. Equity index funds are subject to market fluctuations and do not prioritize capital preservation.
- B. REITs are illiquid and subject to real estate market risks.
- C. Long-term corporate bonds have interest rate risk and less liquidity than money market instruments.
Money Market Instruments
Short-term debt securities that are highly liquid and considered very safe, typically used by investors for capital preservation and immediate cash needs.
- High liquidity.
- Low risk (capital preservation).
- Short maturity periods (typically less than one year).
Memory trick: Money markets are like a 'money-safe' for your short-term cash.