Portfolio Management 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 Portfolio Management flashcards as text
The efficient frontier represents:
Answer: Optimal portfolios offering the highest expected return for a given risk level
The efficient frontier is the set of portfolios that maximize expected return for each level of risk (standard deviation).
Correlation between asset classes is important in portfolio construction because:
Answer: Low or negative correlation reduces portfolio volatility
Assets with low or negative correlation tend to move independently or oppositely, reducing overall portfolio volatility through diversification.
A growth investment style focuses on:
Answer: Companies with high earnings growth potential
Growth investing targets companies expected to grow earnings faster than average, often at premium valuations.
Which risk measure specifically captures the downside risk of an investment?
Answer: Sortino ratio
The Sortino ratio measures return relative to downside deviation, focusing only on harmful volatility (negative returns).
Tax-loss harvesting involves:
Answer: Selling losing positions to offset capital gains
Tax-loss harvesting sells securities at a loss to offset capital gains elsewhere in the portfolio, reducing tax liability.
Investment Policy Statement (IPS) serves what primary purpose?
Answer: Documenting client objectives and investment guidelines
An IPS documents a client's investment objectives, constraints, risk tolerance, and guidelines to govern portfolio management decisions.
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