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Question 1

Objective: Preservation of Capital (Safety)

Answer 1

Goal: To keep their original investment from declining in value (safety).

Suitable Investments: CDs, Money market mutual funds, U.S. government securities (like Treasury bills), Fixed annuities.

Question 2

Objective: Current Income

Answer 2

Goal: To generate a steady stream of cash flow from their investments.

Suitable Investments: Bonds (corporate, government, municipal), Preferred stocks, Utility stocks and blue-chip stocks with strong dividend histories, Income-oriented mutual funds.

Question 3

Objective: Capital Growth (Appreciation)

Answer 3

Goal: To have the value of their investment increase over time.

Suitable Investments: Common stock, Common stock mutual funds, For moderate growth: Blue-chip stocks, For aggressive growth: Technology stocks or sector funds.

Question 4

Objective: Tax Advantages

Answer 4

Tax-Deferred Growth: Annuities, IRAs and other retirement plans.

Tax-Free Income: Municipal bonds (especially for those in high tax brackets), Municipal bond funds.

Question 5

Objective: Portfolio Diversification

Answer 5

Goal: To spread investments across different asset classes or securities to reduce risk.

Suitable Investments: Mutual funds (especially asset allocation funds or balanced funds), Adding foreign securities to a domestic portfolio, Adding bonds to an all-stock portfolio (and vice versa).

Question 6

Objective: Liquidity

Answer 6

Goal: The ability to sell an investment quickly at or near its current market price.

Liquid Investments: Securities listed on an exchange (e.g., NYSE), Nasdaq securities, Mutual funds. Illiquid Investments: Annuities (especially with surrender periods), Real estate, Limited partnerships.

Question 7

Objective: Speculation

Answer 7

Goal: To try to earn much higher-than-average returns in exchange for taking on much higher-than-average risk.

Suitable Investments: High-yield (‘junk’) bonds, Options contracts, Sector funds or special situation funds, Precious metals.

Question 8

How to Make a Suitable Recommendation

Answer 8

1. Match the Primary Objective: First, only consider investments that meet the customer’s single most important goal.
2. Look for Secondary Objectives: If multiple options fit the primary goal, use secondary goals (like risk tolerance or liquidity needs) to narrow down the choices.
3. Compare Similar Investments: If options are still very similar, compare their performance, volatility, tax advantages, etc.

Question 9

Bullish vs. Bearish

Answer 9

Bullish: An investor who believes a security’s price will go up (a positive direction).
Bearish: An investor who believes a security’s price will go down (a negative direction).