Suitable (Suitability)

DEFINITION of 'Suitable (Suitability)'

A situation (and sometimes a legal requirement) that an investment strategy meets the objectives and means of an investor. In most parts of the world financial professionals have a duty to take steps that ensure that an investment is suitable for a client. For example, in the United States these rules are enforced by the NASD.

BREAKING DOWN 'Suitable (Suitability)'

In other words: is an investment appropriate for an investor? No investment (other than outright scams) are inherently suitable or unsuitable, it depends on the investor's situation. For example, for a 95 year old widow living on a fixed income, speculative investments such as options and futures, penny stocks, etc. are extremely unsuitable because the widow has a low risk tolerance. On the other hand, an executive with significant net worth and investing experience might be comfortable taking on those speculative investments as part of his/her portfolio.

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