NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesHard
A client is 55 years old and plans to retire at 65. They have a significant portfolio and are concerned about market volatility during their transition to retirement. They want to ensure that a substantial portion of their portfolio is protected from major downturns in the years immediately preceding and following retirement. Which investment strategy is specifically designed to address this concern by gradually shifting assets into more conservative investments?
- AGlide path strategy
- BAggressive growth strategy
- CCore-satellite approach
- DBuy-and-hold strategy
Show answer & explanationAnswer & explanation
Correct answer: A. Glide path strategy
A glide path strategy, commonly used in target-date funds, is designed to automatically adjust asset allocation over time, becoming more conservative as the investor approaches and enters retirement. This gradual shift aims to reduce exposure to market volatility during critical periods.
Why the other options are wrong
- B. Aggressive growth is unsuitable for someone nearing retirement and concerned about volatility.
- C. The core-satellite approach combines active and passive management but doesn't inherently involve a systematic de-risking over time.
- D. A buy-and-hold strategy maintains a fixed allocation, which would not automatically de-risk the portfolio as the client nears retirement.
Glide Path Strategy
An investment strategy, typically found in target-date funds, where the asset allocation automatically becomes more conservative (e.g., more bonds, fewer stocks) as the investor approaches and enters retirement.
- Automated de-risking over time.
- Common in target-date funds.
- Aims to reduce volatility around retirement.
Memory trick: Glide path: Smoothly down to safety.