A 60-year old man is looking to create a portfolio that will provide current income and preservation of capital. Which of the following portfolios would be the BEST recommendation to the client?

A. Long term corporate bonds rated AA or better, high yield corporate bonds and blue chip stocks
B. Treasury bills, a money market mutual fund and bank certificates of deposit
C. Treasury STRIPS, corporate income bonds and PO tranches
D. Growth stocks, defensive stocks and foreign stocks

The correct answer is letter "B": Treasury bills, a money market mutual fund and bank certificates of deposit.

Explanation:

One of the distinctive features of Treasury Bills is that the government does not periodically pay the holder's interest, instead, the securities are priced under face value, which results in a profit at maturity. Treasury bills offer two major benefits: their lack of risk and tax advantages over other investment opportunities.

Mutual funds are a pool of assets put together to reduce risk and provide small investors the opportunity to access a professionally managed investment vehicle. Certificates of Deposit (CDs) require account holders to keep their money for a certain period so they can benefit from higher interest rates.

Therefore, Treasury Bills, mutual funds, and CDs represent the best investment vehicles the 60-year-old man can choose from to generate income while preserving capital.

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