Chapter Two

  1. Asset Allocation
    Distribution of investors wealth among different countries and asset classes for investment purposes.
  2. Asset Class
    The group of securities that have similar characteristics, attributes and risk/return relationships.
  3. Risk Objectives
    Based on investors ability and willingness to take risk

    Risk tolerance depends on investors current net worth, income expectations and age.
  4. Return Objectives
    Stated as an absolute or a relative % return

    Capital preservation (minimise real losses)

    Capital appreciation (portfolio growth)

    Current income (focus on generating income rather than capital gains)

    Total return (increase portfolio value by capital gains and reinvesting current income with moderate risk exposure)
  5. Investment Constraints
    Liquidity needs

    Time horizons

    Tax concerns
  6. Methods of Tax Deferral
    Regular IRA

    Roth IRA

    Cash Value Life Insurance

    Tax Sheltered Annuities

    Employer's 401(k) and 403(b) Plans
  7. Importance of Asset Allocation
    What asset classes to consider

    What policy weights to assign to each eligible class

    What allocation ranges are allowed based on policy weights

    What specific securities to purchase for the portfolio
Card Set
Chapter Two
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