Sam and Betty are a married couple with two children ...

By Investopedia Staff AAA
Q:
Sam and Betty are a married couple with two children, ages 7 and 9.  Both Sam and Betty are full-time employed and their children are kept by a part-time housekeeper after school.  Sam is 37 and has a corporate pension plan provided by his employer.  Betty is 35 and participates in her firm’s 401(k) program.  The couple just bought a new home and sold the old one.  From the proceeds of the sale of the old home, they realized a profit of $32,000 which they plan to invest for their retirement.  They have stated their basic objectives as long-term growth, but are willing to accept market fluctuations. Which of the following types of mutual funds should their registered representative recommend?
   
A) 20% Government securities, 30% municipal bonds, 50% high-yield bonds.
B) 25% conservative growth, 75% aggressive growth.
C) 25% bond and preferred stock, 50% growth and income, 25% municipal bonds.
D) 50% bond and preferred stock, 50% Ginnie Mae.
A:
The correct answer is B)
Many questions of this nature are open to interpretation, but in this case, the couple appears to be financially able to take the risks they mentioned in their objectives. The major problem facing them is that of loss of purchasing power. No debt instrument will provide any kind of hedge against inflation. A conservative growth fund should provide stability and growth while an aggressive growth provides opportunity for accelerated returns.

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