CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
A 35-year-old investor with stable employment plans to retire in 30 years and has no near-term spending needs. Which statement about her time horizon and its effect on investment constraints is most likely correct?
A long time horizon generally increases her ability to tolerate short-term volatility, because there is time to recover from interim losses. It does not require mostly cash holdings, and liquidity needs such as emergency reserves must still be considered.
- AA long time horizon generally increases her ability to tolerate short-term volatility.Correct
- BA long time horizon requires her to hold mainly cash equivalents.
- CA long time horizon removes the need to consider liquidity.
Explanation
A long horizon allows time to recover from interim losses and usually supports a higher ability to take risk and a greater allocation to growth assets. Holding mainly cash is not required. Liquidity needs, such as an emergency reserve, still must be considered even with a long horizon.
Did you get it right without looking?
One question tells you little. A timed set on Basics of Portfolio Planning and Construction shows your real accuracy, how long you take and where you lose marks.
More Basics of Portfolio Planning and Construction questions
- A pension plan has liabilities with a present value of 800 million and assets of 880 million. In a liability-relative approach to strategic …
- A portfolio manager's mandate sets a return objective of the benchmark return plus 2% with a maximum tracking risk of 3%. The benchmark retu…
- An investment committee excludes tobacco and weapons producers from its equity portfolio because the trustees object to those industries on …
- Which IPS component most likely addresses a client's preference to exclude tobacco company securities from the portfolio?
- A portfolio manager builds a portfolio by first setting the target allocation across asset classes and then selecting securities within each…
- An investment policy statement for a foundation says it must keep enough assets in cash and short-term securities to meet a large, scheduled…