Finra SIE Exam - Topic 3 Question 9 Discussion

Actual exam question for Finra's SIE exam

Question #: 9
Topic #: 3

[All SIE Questions]

Which of the following is the primary risk of using asset allocation models without periodic rebalancing?

AInflation

BMarketability

COverweighting

DInterest rate risk

Show Suggested Answer

Suggested Answer: C

Step by Step Explanation:

Rebalancing: Ensures that a portfolio remains aligned with its target allocation. Without rebalancing, outperforming assets can become overweighted, increasing exposure to specific risks.

Incorrect Options:

Inflation: Impacts purchasing power but isn't tied to rebalancing.

Marketability: Refers to liquidity and isn't linked to allocation models.

Interest Rate Risk: Relates to fixed-income investments and isn't directly addressed by allocation models.

SEC Investor Bulletin on Asset Allocation: SEC Asset Allocation.

by Myong at Apr 03, 2025, 01:19 PM

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Moon

7 months ago

Interest rate risk can also be a concern, but I think C is more relevant.

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Lucina

7 months ago

I disagree, inflation is the real issue here.

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Tonette

7 months ago

Wait, is it really that simple?

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Chantell

7 months ago

C seems right, you can end up too heavy in one asset.

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Jacklyn

8 months ago

Overweighting is definitely a big risk!

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Ashley

8 months ago

I thought inflation could be a risk too, but I lean more towards overweighting as the primary concern. It just makes sense to me.

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Johnna

8 months ago

I practiced a similar question, and I feel like overweighting was mentioned as a key issue when models aren't rebalanced.

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Ammie

8 months ago

I'm not entirely sure, but I remember something about interest rate risk being a concern in asset allocation. Could that be it?

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Marylyn

9 months ago

I think the main risk is probably related to overweighting, since not rebalancing can lead to an unintentional concentration in certain assets.

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France

9 months ago

The key here is understanding how not rebalancing can lead to imbalances in the portfolio. I think the answer is C - overweighting.

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Breana

9 months ago

I'm a bit confused on this one. I'll need to review my notes on asset allocation and rebalancing to figure out the primary risk.

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Elden

9 months ago

Hmm, overweighting seems like the most likely risk here. If you don't rebalance, some assets could become too dominant in the portfolio.

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Junita

9 months ago

This is a tricky one. I'll need to think through the risks of not rebalancing an asset allocation model.

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Adelle

1 year ago

Hmm, I'd say overweighting is the culprit. Letting those asset proportions get out of whack is just asking for trouble.

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Lacey

1 year ago

Inflation! If you don't rebalance, your portfolio won't keep up with the rising cost of living. That's a recipe for disaster.

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Richelle

1 year ago

D) Interest rate risk

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Darrel

1 year ago

C) Overweighting

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Deonna

1 year ago

A) Inflation

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Yong

1 year ago

Marketability? Nah, that's not the primary risk here. Gotta keep those assets balanced, folks!

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Nancey

1 year ago

Gotta keep those assets balanced, folks!

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Genevive

1 year ago

C) Overweighting

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Alesia

1 year ago

A) Inflation

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Ardella

1 year ago

I'd go with interest rate risk. Failing to rebalance means your portfolio could get hammered when rates change.

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Gilma

1 year ago

Overweighting, for sure! Those asset models need constant attention, otherwise they'll spiral out of control.

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Annice

1 year ago

Interest rate risk is also a big concern when using asset allocation models without rebalancing.

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Helga

1 year ago

I think the primary risk is inflation, it can erode the value of your assets over time.

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Justine

1 year ago

I agree, overweighting can really throw off your portfolio balance.

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Trinidad

1 year ago

But wouldn't not rebalancing lead to a higher exposure to certain assets, causing overweighting?

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Dorathy

1 year ago

I disagree, I believe it's D) Interest rate risk.

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Trinidad

1 year ago

I think the primary risk is C) Overweighting.

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