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Suitability Flashcards

(58 cards)

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1
Q

Coverdell Education Saving Account (CESA)

A

Suitable for investors saving for a child’s education expenses, including elementary, secondary, or higher education

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2
Q

529 College Savings Plan

A

Suitable for investors saving for a child’s higher education expenses (college funding) or for paying for private school tuition and books for grades K through 12 (up to $10,000
per year)

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3
Q

Real Estate Investment Trust (REIT)

A

Suitable for investors seeking high dividend yield and willing to accept the price volatility associated with the value of the underlying properties

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4
Q

Hedge Fund

A

Suitable only for sophisticated investors who can afford the increased risk and potential loss of capital; must be able to tie up funds for the long-term

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5
Q

Variable Annuity

A

Suitable for investors seeking tax-deferred retirement savings or the potential for lifetime payments

Unsuitable for older investors or those seeking fixed payments

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6
Q

Fixed Annuity

A

Suitable for investors seeking lifetime income payments after retirement, with the understanding that the fixed rate of return may not keep up with inflation

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7
Q

Individual Retirement Account (IRA)

A

Suitable for persons with earned income who are saving for retirement

Unsuitable for persons with no earned income (e.g., already retired)

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8
Q

ROTH IRA

A

Suitable for persons with earned income (below the limit) who are saving for retirement and want future tax-free withdrawals

Unsuitable for persons with no earned income (e.g., already retired)

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9
Q

Balanced Fund

A

Suitable for conservative investors seeking both long-term growth and current income

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10
Q

International Stock Fund

A

Suitable for investors seeking to diversify into foreign stocks

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11
Q

Index Fund

A

Suitable for investors seeking a low-cost alternative to more actively managed funds with similar objectives

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12
Q

Exchange Traded Fund

A

Suitability is based on the type of ETF investment made
• Traditional ETFs are suitable as a low cost and long-term investment (like mutual funds)
• Non-traditional ETFs (i.e., leveraged and inverse) are suitable for short-term trading and speculation

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13
Q

Exchange Traded Note (ETN)

A

Suitable for investors seeking to add diversification in their portfolio and those who want a speculative investment

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14
Q

Closed End Fund

A

Suitable for investors seeking to invest in a diversified portfolio with short-term trading capabilities; similar to ETFs

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15
Q

Business Development Company (BDC)

A

Suitable for aggressive investors who are able to withstand short-term volatility and/or for those seeking an investment that’s often only available to large private equity funds; investors seeking high dividends (considered liquid)

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16
Q

Covered Put

A

Suitable only for sophisticated investors who are able to afford the potential loss resulting from the rising value of a short stock position

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17
Q

Direct Participation Program (DPP) Limited Partnership

A

Suitable for investors who are able to afford significant risks and commit capital for the long term

Unsuitable for investors with short-term needs for liquidity or who cannot benefit from various tax credits/deduction

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18
Q
A
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19
Q

Mutual Fund

A

Suitable for investors seeking to invest in a diversified portfolio of securities rather than creating their own

Unsuitable for investors who are interested in speculation or short-term trading due to the associated transaction costs (sales charges)

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20
Q

Growth Fund

A

Suitable for investors willing to accept the risk associated with long-term growth

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21
Q

Income Fund

A

Suitable for investors seeking current income

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22
Q

Specialized/Sector Fund

A

Suitable only for aggressive investors who are seeking a higher return

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23
Q

Debit Spreads

A

Suitable for investors seeking to speculate on small, short-term price movements:

  • Debit call spreads are bullish
  • Debit put spreads are bearish

Unsuitable for investors expecting large price movement or seeking unlimited gains

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24
Q

Credit Spreads

Study These Flashcards
A

Suitable for investors seeking to generate short-term income with limited risk; greatest profit realized if options expire:

• Credit call spreads are bearish
• Credit put spreads are bullish

Unsuitable for investors expecting large price movement or seeking unlimited gains

25
26
Protective Put
Suitable for investors seeking to limit a short-term loss on the stock position while still participating in potential gains (gain on stock is reduced by premium paid) Unsuitable for investors seeking to generate income
27
Covered Call
Suitable for investors seeking a conservative income generating strategy, with risk exposure that's less than holding the stock without the option (due to the premium received) Unsuitable for investors who believe that the stock has significant upside potential or those who want protection
28
Protective Call
Suitable for investors seeking to limit a short-term loss on the short stock position, while still participating in potential gains (downside gain is minimized by the premium paid) Unsuitable for investors seeking to generate income
29
Z Tranche
Suitable for investors with long time horizons and who need future savings Unsuitable for investors seeking current monthly income or growth
30
Long Options (Buying Calls and Puts)
Suitable for investors who speculate on short-term price fluctuations: • Long calls for bullish speculation • Long puts for bearish speculation Unsuitable for investors seeking income or those who cannot afford a total loss of capital
31
Short Options (Selling Calls or Puts)
Suitable for sophisticated investors willing to accept substantial risk in exchange for premium income Unsuitable for investors who cannot assume substantial risk
32
Long Straddle or Long Combination
Suitable for investors seeking to speculate on short-term price volatility; neither bullish nor bearish Unsuitable for investors seeking income or those who cannot afford loss of capital
33
Short Straddle or Short Combination
Suitable for sophisticated investors speculating on short-term price stability and able to accept substantial risk Unsuitable for investors who cannot assume substantial risk
34
Treasury Inflation Protected Securities (TIPS)
Suitable for investors seeking a hedge against inflation Unsuitable for investors seeking growth or higher income
35
36
Treasury STRIPS
Suitable for investors seeking to receive a fixed sum of money to satisfy a future expense (for long-term saving, planning for retirement, or college funding) Unsuitable for investors seeking current income or during times where inflation or interest rates are rising
37
Government Agency Mortgage Backed Securities
Suitable for investors seeking safety, monthly interest income, and a yield that's slightly higher than U.S. Treasuries Unsuitable for investors who want a fixed maturity or stable cash flows
38
Collateralized Mortgage Obligation (CMO)
Suitable for investors seeking monthly income, and customized prepayment risk Unsuitable for investors seeking growth or less sophisticated investors unfamiliar with CMO tranches and associated risks
39
Planned Amortization Class (PAC)
Suitable for investors seeking monthly income payments, with predictable payment structure and maturity Unsuitable for investors seeking growth or high yields
40
Support/ Companion Tranche
Suitable for investors willing to take on a high degree of prepayment risk due to changing interest rates in exchange for a higher yield Unsuitable for more conservative clients or those seeking growth
41
Private Activity/ Industrial Development Bond
Suitable for investors seeking a higher yielding municipal bond and are not subject to the alternative minimum tax (AMT) Unsuitable for investors who are subject to the AMT since the interest may be taxable
42
Municipal Note
Suitable for investors in high tax brackets who are investing for short-term needs Unsuitable for investors seeking long-term investments or those who are in low tax bracket
43
Auction Rate Security
Suitable for conservative investors seeking income Unsuitable for investors seeking growth and liquidity
44
Variable Rate Demand Obligation (VRDO)
Suitable for conservative investors seeking income Unsuitable for investors seeking growth
45
Treasury Note & Treasury Bond
Suitable for investors seeking fixed income and safety of principal Unsuitable for investors seeking growth or capital appreciation
46
Treasury Bill
Suitable for investors seeking absolute safety of principal who are willing to accept a very low return Unsuitable for investors seeking growth or capital appreciation
47
Corporate Bond
Suitable for investors seeking current income for a specific period Unsuitable for investors seeking growth or capital appreciation or those who are in a high tax bracket
48
Convertible Bond
Suitable for investors seeking income with the potential for long-term growth (the relative safety of a bond, with the growth potential of the underlying stock) Unsuitable for investors seeking high income or those with short-term objectives
49
Zero-Coupon Bond
Suitable for investors seeking an investment that's less risky than equities and provides predictable growth (used for retirement planning or college funding) Unsuitable for investors seeking current income or if the level of inflation or interest rates are rising
50
High-Yield Bond (Junk Bond)
Suitable for high-risk, speculative investors Unsuitable for conservative investors
51
Money Market Instrument
Suitable for investors seeking conservative investments for short-term needs; used to hold funds safely until needed or invested for a longer term Unsuitable for investors seeking long-term growth and/or income
52
Municipal Bond
Suitable for investors in high tax brackets and seeking tax-exempt interest income Unsuitable for growth investors or those in low tax brackets or with low incomes; should not be included in an IRA or other tax-deferred account
53
Common Stock
Suitable for investors seeking long-term growth (capital appreciation) and the opportunity to outpace inflation Unsuitable for short-term investors or those seeking safety of principal
54
Preferred Stock
Suitable for investors seeking stable dividend income with returns that are comparable to long-term bonds Unsuitable for investors seeking capital appreciation
55
Growth Stock
Suitable for investors seeking long-term growth and retirement savings; good hedge against inflation Unsuitable for investors seeking income or short-term investing due to its greater volatility
56
Utility Stock
Suitable for investors seeking stable dividend income (e.g., older or retired investors) Unsuitable for investors seeking a growth investment
57
American Depositary Receipt
Suitable for investors seeking to invest in foreign companies (similar to U.S. common stock) Unsuitable for investors unwilling to take on the risk associated with investing in foreign companies (e.g., political risk; exchange risk)
58
Bond
Suitable for older and/or more conservative investors who want consistent income Unsuitable for investors seeking a growth investment

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