Financial Advisor Personal Financial Advisor 5

Question 1

Which of the following is NOT a characteristic of a qualified retirement plan under IRS guidelines?

Accepted Answer

Unlimited annual contribution amounts

Answer

Qualified retirement plans have annual contribution limits set by the IRS; unlimited contributions are not permitted.

Question 2

What is the wash-sale rule?

Accepted Answer

A rule disallowing a tax loss if the same or substantially identical security is repurchased within 30 days before or after the sale

Answer

The wash-sale rule disallows claiming a capital loss if the taxpayer buys the same or substantially identical security within 30 days before or after the sale.

Question 3

A 40-year-old client has a moderate risk tolerance and a 25-year investment horizon. Which asset allocation is MOST appropriate?

Accepted Answer

70% stocks / 30% bonds for growth with some stability

Answer

A 70/30 stock-to-bond allocation aligns with a moderate risk tolerance and long time horizon, providing growth potential while managing volatility.

Question 4

What is the primary purpose of rebalancing a portfolio?

Accepted Answer

To restore the portfolio to its target asset allocation after market movements have shifted the mix

Answer

Rebalancing returns the portfolio to its intended asset allocation, managing risk that can increase when one asset class grows disproportionately.

Question 5

Which of the following describes sequence-of-returns risk?

Accepted Answer

The risk that poor early investment returns during the withdrawal phase can permanently deplete a portfolio faster than average returns would suggest

Answer

Sequence-of-returns risk is especially dangerous during the early retirement withdrawal phase, as large losses early on reduce the principal available to benefit from later recoveries.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Personal Financial Advisor 5