Chapter 4

Question 1

What are the seven key steps in the portfolio management process?

Answer 1

1. Determine the client’s investment objectives and any constraints.
2. Create an investment policy statement (IPS)
3. Establish an appropriate asset allocation.
4. Select securities.
5. Monitor the client situation and markets.
6. Evaluate the portfolio’s performance.
7. Rebalance as required.

DCESMER

Question 2

Strategic asset allocation (SAA)

Answer 2

Refers to what portion of the portfolio should be invested in each asset class.

Question 3

Tactical asset allocation (TAA)

Answer 3

A temporary shifting of the portfolio away from the SAA to take advantage of fluctuations that benefit the client.

Question 4

Stepping asset allocation

Answer 4

This strategy will reduce the risk and allow the client to stick to a long-term plan, based on four and eight years.