Investment Strategies Flashcards
6 cards from real RIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Strategies flashcards as text
A passive investment strategy seeks to:
Answer: Replicate market index returns with minimal trading and costs
Passive investing aims to match market index returns by holding the same securities as the index with minimal trading.
The value investing approach, associated with Benjamin Graham, focuses on:
Answer: Buying securities trading below their intrinsic value
Value investing seeks stocks trading below their intrinsic value, providing a 'margin of safety' against loss.
In a rising interest rate environment, which bond strategy would best protect a portfolio?
Answer: Reducing duration (shortening maturities)
Shortening portfolio duration reduces interest rate risk when rates are rising, as shorter-term bonds are less sensitive to rate changes.
Dollar-cost averaging (DCA) is most beneficial when:
Answer: Investors are uncertain about market timing and invest regularly over time
DCA is most valuable for investors who want to reduce timing risk by investing fixed amounts consistently rather than trying to pick the optimal entry point.
A covered call options strategy involves:
Answer: Selling call options against existing stock holdings to generate income
A covered call sells call options against stock the investor already owns, generating premium income while capping upside potential.
Sector rotation strategy attempts to:
Answer: Invest in sectors expected to outperform at different stages of the economic cycle
Sector rotation moves investments between sectors based on their expected performance at different phases of the business cycle.
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