NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A client, aged 68, is seeking an investment product that guarantees income for life, regardless of how long they live. They are primarily concerned with outliving their savings and are willing to sacrifice some liquidity for this assurance. Which of the following investment vehicles would be most suitable for this client's primary objective?
- AA diversified portfolio of blue-chip stocks.
- BA short-term U.S. Treasury bond fund.
- CA fixed annuity.
- DA growth-oriented mutual fund.
Show answer & explanationAnswer & explanation
Correct answer: C. A fixed annuity.
A fixed annuity provides guaranteed income for life, addressing the client's primary concern of outliving their savings. The other options do not offer this guarantee.
Why the other options are wrong
- A. Stocks offer growth potential but no guaranteed income for life.
- B. Treasury bond funds offer safety and liquidity but do not guarantee income for life.
- D. Growth mutual funds aim for capital appreciation, not guaranteed income.
Fixed Annuity
A contract with an insurance company that guarantees a fixed periodic payment for a specified period, often for the life of the annuitant, in exchange for a premium payment.
- Provides guaranteed income.
- Protects against longevity risk.
- Typically offers conservative returns.
Memory trick: Annuities are your 'Annuity-tee' against outliving your money.