Question

A 68-year old new customer has investment objectives of preservation of capital and income in retirement. The customer has a low risk tolerance and is in the 35% marginal federal tax bracket and is in the 10% state tax bracket. Which investment recommendation would be most suitable for this client

Answer 1

Answer:

C) Pre-funded general obligation funds.

Explanation:

Since this customer is looking to preserve his capital and income in retirement (he is 68 years old, if he isn't retired, he will soon be). Since his tax bracket is very high, he should invest in bonds that do not pay federal income taxes, like pre-funded municipal bonds. These are very safe investments that generally have shorter maturity dates. That way, both of the client's needs will be met: secure investments and income.