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 achieve long-term growth while maintaining some stability. Which of the following asset allocation strategies would be most appropriate for this client?
- A80% fixed income and 20% equities to prioritize stability
- BA balanced portfolio of 60% equities and 40% fixed income
- C100% fixed income to ensure capital preservation
- D100% equities to maximize growth potential
Show answer & explanationAnswer & explanation
Correct answer: B. A balanced portfolio of 60% equities and 40% fixed income
A balanced portfolio of 60% equities and 40% fixed income is appropriate for a client with a moderate risk tolerance and a 20-year time horizon, aiming for long-term growth with some stability. This provides a blend of growth potential and risk mitigation.
Why the other options are wrong
- A. This allocation is too conservative for a 45-year-old with a 20-year time horizon seeking long-term growth.
- C. 100% fixed income would severely limit long-term growth potential and is only suitable for very conservative investors with short time horizons.
- D. 100% equities would be too aggressive for a client seeking some stability.
Strategic Asset Allocation
A portfolio strategy that involves setting target allocations for various asset classes and rebalancing periodically to maintain those allocations, reflecting an investor's risk tolerance, time horizon, and financial goals.
- Determined by investor's goals, risk tolerance, and time horizon.
- Typically involves a mix of equities, fixed income, and sometimes alternative assets.
- Aims to achieve long-term investment objectives.
Memory trick: Balance the client's goals with their tolerance for market swings.