NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 30, has just started a new job and has a long-term investment horizon (30+ years) for retirement. They have a high tolerance for risk and are looking for aggressive growth. Which of the following asset allocations would be most appropriate for this client?
- A60% equities, 40% bonds
- B80% bonds, 20% equities
- C90% equities, 10% cash/short-term bonds
- D50% real estate, 50% commodities
Show answer & explanationAnswer & explanation
Correct answer: C. 90% equities, 10% cash/short-term bonds
Given a long time horizon and high risk tolerance, an aggressive growth strategy with a significant allocation to equities is appropriate. Equities historically offer the highest growth potential over the long term, and the small allocation to cash/short-term bonds provides minimal liquidity without significantly hindering growth.
Why the other options are wrong
- A. This is a balanced allocation, suitable for moderate risk, not aggressive growth.
- B. This allocation is too conservative for a client with a long time horizon and high risk tolerance seeking aggressive growth.
- D. While real estate and commodities can offer growth, this allocation lacks diversification across traditional asset classes and might be too concentrated and volatile without equities.
Aggressive Growth Allocation
An investment strategy characterized by a high proportion of equities, particularly growth stocks, designed for investors with a long time horizon and high risk tolerance seeking maximum capital appreciation.
- Primarily focused on capital appreciation.
- High exposure to equity market volatility.
- Suitable for long-term goals like early retirement savings.
Memory trick: Allocate assets based on your age, goals, and risk appetite.