Accredited Wealth Management Advisor Practice Exam

In the investment pyramid, which sequence denotes increasing safety of principal?

1. Limited partnerships, Treasury securities, high-grade corporate bonds

2. Futures contracts, balanced mutual funds, EE bonds

3. Variable annuities, puts and calls, money market accounts

4. Gold, high-grade municipal bonds, growth mutual funds

The correct answer is: Futures contracts, balanced mutual funds, EE bonds

The sequence related to increasing safety of principal is represented by assets that typically have varying levels of risk associated with them. In this scenario, balanced mutual funds tend to offer moderate risk and can provide a mix of investments, including stocks and bonds, which offer some level of growth while also providing a degree of safety through diversification. Futures contracts, on the other hand, are highly leveraged and speculative, which means they carry a significant risk of loss. This makes them less safe. Conversely, EE bonds, which are a type of U.S. government savings bond, carry very low risk and are backed by the federal government, ensuring a high level of safety for the principal invested. The combination of these three investments illustrates a progression from higher risk (futures contracts) to moderate risk (balanced mutual funds) and finally to very low risk (EE bonds), thus accurately depicting an increasing safety of principal.