Finra Series-6 Exam - Topic 2 Question 112 Discussion

Liz is a new client of yours. She is 36 years old, single, and has been working and earning a nice salary since her graduation from high school. She has been contributing the maximum allowed to a TSA plan through her employer, and you have no reason to doubt that she will meet her stated goal to retire when she is 58. She also has a good health care plan through her employer and is in excellent health. She has been depositing her non-retirement savings in a money market fund and is not pleased at the pathetic return she has been earning on her current balance of $140,000. Liz has been reading some articles on the web and understands she could allocate her funds to receive a higher return. She's willing to take on a moderate level of risk, but needs your help. She informs you that she does plan to use $40,000 of her current savings as a down payment for a condo and that her investment goals are to have money available for travel and for unexpected expenses and periodic purchases such as new cars and new furniture as the needs arise. She pays taxes at the highest marginal tax rate for individual tax payers.

Based on these facts, which of the following asset allocations would best meet her needs?

i. Money market fund: 30%; investment-grade corporate bonds: 20%; blue-chip stocks: 20%; high-yield bonds: 10%; small cap stocks: 10%; foreign stocks: 10%

ii. Money market fund: 10%; investment-grade municipal bonds: 5%; blue-chip stocks: 25%; high-yield bonds: 25%; small cap stocks: 10%; foreign stocks: 25%

iii. Money market fund: 10%; investment-grade municipal bonds: 25%; growth stocks: 40%; small cap stocks: 15%; foreign stocks: 10%