Client Investment Recommendations and Strategies Flashcards
6 cards from real Series 65 – Uniform Investment Adviser Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Client Investment Recommendations and Strategies flashcards as text
What is the primary goal of tax-loss harvesting?
Answer: To realize capital losses to offset capital gains and reduce tax liability
Tax-loss harvesting involves selling securities at a loss to offset capital gains realized elsewhere in the portfolio, thereby reducing the investor's tax bill.
What is the investment pyramid (or risk pyramid) used to illustrate?
Answer: A hierarchy of investments from most stable and liquid at the base to most speculative at the top
The investment pyramid shows that the foundation of a portfolio should consist of safe, liquid assets, with increasingly speculative investments occupying a smaller portion toward the apex.
When constructing a client's investment policy statement (IPS), which of the following is a critical component?
Answer: The client's investment objectives, risk tolerance, time horizon, and constraints
An IPS documents the client's investment goals, risk tolerance, time horizon, liquidity needs, tax situation, and any unique constraints to guide portfolio management.
What is the primary benefit of a 529 college savings plan?
Answer: Earnings grow tax-deferred and qualified withdrawals for education are federal tax-free
529 plans offer tax-deferred growth and tax-free withdrawals when funds are used for qualified higher education expenses.
What does 'sequence of returns risk' refer to in retirement planning?
Answer: The risk that poor investment returns early in retirement can significantly deplete a portfolio before recovery occurs
Sequence of returns risk is the danger that a series of negative returns early in retirement, combined with withdrawals, can permanently impair a portfolio even if later returns are positive.
What is meant by 'liquidity' as an investment constraint?
Answer: The client's need to convert investments to cash quickly without significant loss of value
Liquidity as an investment constraint refers to how quickly and easily a client may need to access their invested funds and whether investments can be converted to cash without material loss.