NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 45, is planning for retirement in 20 years. They are comfortable with moderate risk and want to ensure their portfolio keeps pace with inflation while providing growth. Which of the following asset allocations is generally most suitable for this client?
- A60% equities, 30% bonds, 10% cash equivalents
- B20% equities, 70% bonds, 10% real estate
- C100% commodities
- D80% bonds, 20% cash equivalents
Show answer & explanationAnswer & explanation
Correct answer: A. 60% equities, 30% bonds, 10% cash equivalents
A 45-year-old client with a 20-year time horizon and moderate risk tolerance needs a portfolio that emphasizes growth to outpace inflation, but also includes some stability. A 60% equities, 30% bonds, 10% cash allocation provides a good balance.
Why the other options are wrong
- B. This allocation is too conservative, with insufficient equity exposure for a 20-year time horizon and growth objective.
- C. 100% commodities represents an extremely high-risk, speculative allocation, unsuitable for a moderate risk investor saving for retirement.
- D. This allocation is too conservative for a 20-year time horizon and moderate risk tolerance, unlikely to meet growth objectives.
Strategic Asset Allocation
The process of determining the optimal mix of asset classes (e.g., stocks, bonds, cash) in a portfolio to meet long-term investment goals and risk tolerance.
- Typically set for long-term horizons.
- Balances risk and return objectives.
- Often adjusted over an investor's lifecycle.
Memory trick: Allocate assets wisely, balance risk and reward for future security.