NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, a 45-year-old software engineer, has a stable income and a moderate risk tolerance. They are looking to invest for retirement, which is approximately 20 years away. They are interested in a diversified portfolio that offers potential for growth while managing downside risk. Which of the following investment strategies would be most suitable for this client?
- AA portfolio comprising only inflation-indexed annuities.
- BA portfolio solely focused on high-growth, speculative technology stocks.
- CA portfolio heavily weighted towards short-term government bonds.
- DA balanced portfolio with a mix of equities, fixed income, and alternative investments.
Show answer & explanationAnswer & explanation
Correct answer: D. A balanced portfolio with a mix of equities, fixed income, and alternative investments.
A balanced portfolio aligns well with a moderate risk tolerance and a long-term goal like retirement. It provides diversification across asset classes, aiming for growth through equities and stability/income through fixed income, with alternatives potentially enhancing returns or reducing risk.
Why the other options are wrong
- A. Inflation-indexed annuities primarily offer income and protection against inflation, but typically lack the growth potential needed for a 20-year retirement savings goal.
- B. High-growth speculative stocks are too aggressive for a moderate risk tolerance and lack diversification.
- C. Short-term government bonds offer low growth potential and are not suitable for a long-term retirement goal.
Balanced Portfolio
An investment portfolio that combines different asset classes, typically equities (for growth) and fixed income (for stability and income), to achieve a balance between risk and return.
- Aims for both capital appreciation and income generation.
- Suitable for investors with moderate risk tolerance.
- Diversifies across asset classes to manage risk.
Memory trick: Balance your future by blending growth with stability.