Portfolio Management Flashcards

Asset allocation primarily aims to:

Answer: Balance risk and return across different asset classes

Asset allocation distributes investments across asset classes to optimize the risk-return tradeoff for a client's goals.

Rebalancing a portfolio involves:

Answer: Returning allocations to target percentages

Rebalancing restores the portfolio to its original target allocation by selling assets that have grown beyond targets and buying those that have fallen below.

The primary purpose of a benchmark in portfolio management is to:

Answer: Provide a standard against which portfolio performance is measured

A benchmark provides a reference point to evaluate whether a portfolio manager is adding value relative to the market.

Dollar-cost averaging is a strategy that involves:

Answer: Investing fixed amounts at regular intervals regardless of price

Dollar-cost averaging invests a fixed dollar amount at regular intervals, buying more shares when prices are low and fewer when high.

Which portfolio theory concept suggests that investors should only take on additional risk if compensated with additional return?

Answer: Risk-return tradeoff

The risk-return tradeoff principle states that higher potential returns require accepting higher risk.

A tactical asset allocation strategy differs from strategic asset allocation by:

Answer: Making short-term adjustments based on market conditions

Tactical asset allocation makes temporary deviations from strategic targets to exploit short-term market opportunities.