NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 40, is seeking to invest a portion of their portfolio into an asset that offers potential for growth while providing a predictable income stream and some downside protection. They are comfortable with moderate risk. Which of the following investment vehicles would be most suitable for this client's objective?
- ACommodity futures contracts
- BHigh-yield corporate bonds
- CAggressive growth stock fund
- DBalanced mutual fund
Show answer & explanationAnswer & explanation
Correct answer: D. Balanced mutual fund
A balanced mutual fund typically invests in a mix of stocks and bonds, offering a combination of growth potential (from stocks) and income/stability (from bonds). This aligns well with the client's desire for growth, predictable income, and moderate risk.
Why the other options are wrong
- A. Commodity futures contracts are highly speculative and carry significant risk, unsuitable for a moderate-risk investor seeking predictable income.
- B. High-yield corporate bonds carry higher risk and are primarily income-focused, not growth.
- C. Aggressive growth stock funds are high-risk and primarily growth-oriented, lacking predictable income or downside protection.
Balanced Mutual Fund
A mutual fund that invests in a mix of equities (stocks) and fixed-income securities (bonds) to provide both growth potential and income, often with a moderate risk profile.
- Diversifies across asset classes.
- Aims for growth and income.
- Suitable for moderate risk tolerance.
Memory trick: Balance your portfolio for steady growth and income.