Question

A 50-year-old client with modest means wants to construct an investment program. He has no investment experience, his major consideration is saving for retirement, and he has limited risk tolerance. Which of the following would you recommend?

A)High-grade bond fund.
B)Aggressive growth mutual funds.
C)Call options on the S&P 500 Index.
D)Growth and income mutual funds.

Answer 1

Recommended for a 50-year-old client with modest means and low risk tolerance is a high-grade bond fund, as it offers a suitable balance between risk and return suitable for someone nearing retirement.

Step-by-step explanation:

For a 50-year-old client with modest means, limited investment experience, and low risk tolerance, a high-grade bond fund would typically be the most suitable recommendation. Compared to the other options listed, a high-grade bond fund provides a balance between risk and return that is appropriate for someone approaching retirement age. Aggressive growth mutual funds and call options are associated with high risk and are better suited for individuals with a longer investment horizon and a greater capacity to absorb financial losses. Growth and income mutual funds might offer a mix of growth potential and income, but still come with a higher risk compared to conservative bond funds. As the primary goal is saving for retirement, the client would likely benefit from an investment that prioritizes capital preservation and consistent income, which a high-grade bond fund is more likely to provide.