Asset Allocation & Selection Flashcards
7 cards from real AAMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Allocation & Selection flashcards as text
Which fixed income duration strategy best protects a bond portfolio against rising interest rates?
Answer: Shortening duration
Shortening duration reduces a bond portfolio's sensitivity to interest rate increases, limiting price declines when rates rise.
An investor holds a large concentrated position in employer stock. Which strategy best reduces concentration risk while deferring taxes?
Answer: Using an exchange fund
Exchange funds allow investors to contribute concentrated stock positions and receive a diversified fund interest, deferring capital gains taxes.
In asset allocation, which behavioral bias leads investors to maintain portfolios that resemble their employer's business sector?
Answer: Familiarity bias
Familiarity bias causes investors to overweight assets they feel familiar with, such as their employer's industry or home market.
Which allocation approach uses multiple asset classes to achieve a consistent volatility target regardless of market conditions?
Answer: Risk parity
Risk parity allocates capital so each asset class contributes equally to total portfolio risk, often levering low-volatility assets to hit targets.
Which of the following is a key advantage of using ETFs over individual securities for asset class exposure?
Answer: ETFs provide instant diversification at low cost
ETFs offer diversified exposure to an entire asset class or index in a single, low-cost, liquid trade.
A client with $2M portfolio wants 5% allocated to alternatives. Which alternative investment type typically requires a long lock-up period?
Answer: Private equity funds
Private equity funds typically lock investor capital for 7–10 years while they deploy capital, manage investments, and exit positions.
Which factor should an advisor consider when selecting between a passive index fund and an active manager for large-cap US equities?
Answer: The relative cost difference versus the probability of alpha generation
In the highly efficient large-cap US equity market, active managers rarely outperform their benchmark after fees, making cost comparison critical.