Investment Strategy Test Flashcards

An income-focused investor would most likely prioritize:

Answer: Dividend-paying stocks and bonds

Income investors favor assets that generate regular cash flow like dividends and interest.

What does alpha measure in portfolio performance?

Answer: Excess return relative to a benchmark

Alpha represents return generated above what the benchmark or risk would predict.

A barbell investment strategy combines:

Answer: Short-term and long-term assets while avoiding the middle

A barbell weights short and long maturities, skipping intermediate ones.

Which factor most increases an investor's appropriate equity allocation?

Answer: A longer time horizon and higher risk tolerance

Longer horizons and greater risk tolerance support higher equity exposure.

Sector rotation strategy attempts to:

Answer: Shift investments into sectors expected to outperform in the economic cycle

Sector rotation moves capital toward industries favored by the current economic phase.

A key advantage of low-cost index funds is:

Answer: Lower expense ratios that preserve more returns

Lower fees mean a larger share of market returns stays with the investor.

Mean reversion strategies assume that asset prices tend to:

Answer: Move toward their historical average over time

Mean reversion assumes prices drift back toward a long-term average.