CRC CRC Investment Strategies & Asset Allocation 1 — Questions and Answers
Question 1: Which investment strategy involves gradually shifting a portfolio from growth-oriented to income-oriented assets as retirement approaches?
- Tactical asset allocation
- Glide path strategy (Correct answer)
- Dollar-cost averaging
- Sector rotation
Correct answer: Glide path strategy
A glide path strategy systematically reduces equity exposure and increases fixed-income holdings as an investor nears retirement.
Question 2: What is the primary purpose of diversification in a retirement portfolio?
- Maximize short-term returns
- Eliminate all investment risk
- Reduce unsystematic risk across asset classes (Correct answer)
- Guarantee income in retirement
Correct answer: Reduce unsystematic risk across asset classes
Diversification reduces unsystematic (company-specific) risk by spreading investments across different asset classes, sectors, and geographies.
Question 3: A CRC client aged 65 asks about the 'bucket strategy' for retirement income. Which description is most accurate?
- Investing only in dividend-paying stocks
- Dividing assets into time-segmented pools with different risk levels (Correct answer)
- Purchasing a series of Treasury bonds
- Allocating 100% to a target-date fund
Correct answer: Dividing assets into time-segmented pools with different risk levels
The bucket strategy segments retirement assets into short-term (cash/bonds), mid-term, and long-term (growth) pools to manage sequence-of-returns risk.
Question 4: Which risk refers to the danger of experiencing poor investment returns early in retirement, which can permanently deplete a portfolio?
- Longevity risk
- Inflation risk
- Sequence-of-returns risk (Correct answer)
- Liquidity risk
Correct answer: Sequence-of-returns risk
Sequence-of-returns risk is the threat that negative returns early in the withdrawal phase will reduce the portfolio's ability to recover, even if average returns are acceptable.
Question 5: In a retirement portfolio, what does 'rebalancing' accomplish?
- Switching all assets to bonds after market drops
- Restoring the portfolio to its target asset allocation (Correct answer)
- Eliminating underperforming funds
- Increasing equity exposure during bull markets
Correct answer: Restoring the portfolio to its target asset allocation
Rebalancing restores the original target allocation by selling assets that have grown above target weights and buying those that have fallen below.
Question 6: Which asset class is generally considered the most effective long-term hedge against inflation within a retirement portfolio?
- Cash equivalents
- Long-term Treasury bonds
- Equities (stocks) (Correct answer)
- Fixed annuities
Correct answer: Equities (stocks)
Equities historically provide returns that outpace inflation over long periods, making them the most effective long-term inflation hedge in a diversified retirement portfolio.
CRC CRC Investment Strategies & Asset Allocation 1
Which investment strategy involves gradually shifting a portfolio from growth-oriented to income-oriented assets as retirement approaches?