Summary of General Investment Goals
For the exam, expect several situational questions that require you to make a judgment about an appropriate investment to recommend to a client, such as the question below, and know the risks associated with the investment. Use the table below to memorize what are the most appropriate investments for different investment goals.
Example Question
Your niece has just graduated from college with a double major in math and computer science. After accepting a job offer from a Silicon Valley Company, she comes to you for advice about investing her signing bonus. She is a smart young woman and she says she wants to start saving for retirement. You tell her that because a bonus is considered earned income, she can use the money to open an IRA. Which of the following asset allocations would be best for the new IRA of your 22-year-old niece:
- A. 60% equities, 20% bonds, 20% cash
- B. 40% equities, 40% Treasury securities, 20% gold
- C. 50% equities, 30% REITs, 20% bonds
- D. 80% equities, 20% bonds
Answer: D
Explanation: Even though equities (stocks) are more volatile than other asset classes, over long periods, they offer the highest returns. Since your niece is just 22 and since she wants to start saving for retirement, the choice with the highest allocation to equities is the best one for her.
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Goal |
Types of Investment Recommendations |
Biggest Risks |
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Preservation of Capital |
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Current Income |
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