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Which of the following is the primary risk of using asset allocation models without periodic rebalancing?
Suggested Answer: C
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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.
30 comments · newest first
MO
Moon
11 months ago
Interest rate risk can also be a concern, but I think C is more relevant.
LU
Lucina
11 months ago
I disagree, inflation is the real issue here.
TO
Tonette
11 months ago
Wait, is it really that simple?
CH
Chantell
11 months ago
C seems right, you can end up too heavy in one asset.
JA
Jacklyn
11 months ago
Overweighting is definitely a big risk!
AS
Ashley
12 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.
JO
Johnna
12 months ago
I practiced a similar question, and I feel like overweighting was mentioned as a key issue when models aren't rebalanced.
AM
Ammie
1 year ago
I'm not entirely sure, but I remember something about interest rate risk being a concern in asset allocation. Could that be it?
MA
Marylyn
1 year ago
I think the main risk is probably related to overweighting, since not rebalancing can lead to an unintentional concentration in certain assets.
FR
France
1 year ago
The key here is understanding how not rebalancing can lead to imbalances in the portfolio. I think the answer is C - overweighting.
BR
Breana
1 year 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.
EL
Elden
1 year ago
Hmm, overweighting seems like the most likely risk here. If you don't rebalance, some assets could become too dominant in the portfolio.
JU
Junita
1 year ago
This is a tricky one. I'll need to think through the risks of not rebalancing an asset allocation model.
AD
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.
LA
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.
RI
Richelle
1 year ago
D) Interest rate risk
DA
Darrel
1 year ago
C) Overweighting
DE
Deonna
1 year ago
A) Inflation
YO
Yong
1 year ago
Marketability? Nah, that's not the primary risk here. Gotta keep those assets balanced, folks!
NA
Nancey
1 year ago
Gotta keep those assets balanced, folks!
GE
Genevive
1 year ago
C) Overweighting
AL
Alesia
1 year ago
A) Inflation
AR
Ardella
1 year ago
I'd go with interest rate risk. Failing to rebalance means your portfolio could get hammered when rates change.
GI
Gilma
2 years ago
Overweighting, for sure! Those asset models need constant attention, otherwise they'll spiral out of control.
AN
Annice
1 year ago
Interest rate risk is also a big concern when using asset allocation models without rebalancing.
HE
Helga
1 year ago
I think the primary risk is inflation, it can erode the value of your assets over time.
JU
Justine
1 year ago
I agree, overweighting can really throw off your portfolio balance.
TR
Trinidad
2 years ago
But wouldn't not rebalancing lead to a higher exposure to certain assets, causing overweighting?
DO
Dorathy
2 years ago
I disagree, I believe it's D) Interest rate risk.
TR
Trinidad
2 years ago
I think the primary risk is C) Overweighting.