Reading 42: Monitoring and Rebalancing －LOS b justify, investor, economic, market

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 15: Monitoring and Rebalancing
Reading 42: Monitoring and Rebalancing
LOS b: Describe and justify the monitoring of investor circumstances, market/economic conditions, and portfolio holdings and explain the effects that changes in each of these areas can have on the investor's portfolio.

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The cost of not rebalancing the portfolio includes all of the following EXCEPT:

A) holding an overpriced asset.

B) holding a riskier, less diversified portfolio.

C) holding assets that no longer fit the needs of the client.

D) the costs of desirable trades that never happen.

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Answer and Explanation

This is a cost of trading due to rebalancing.

This is a cost of trading due to rebalancing.

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Which of the following would NOT be a condition for rebalancing a portfolio?

A) Impact of trades on security prices.

B) Changing time horizons.

C) Change in wealth of the client.

D) Availability of new asset classes.

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Answer and Explanation

Impact of trades on security prices represents a cost of rebalancing.

Changing time horizon may necessitate changes in asset mix. Changes in wealth may alter the client's risk preference. New securities may allow asset allocation shifts with lower transaction costs or create more efficient portfolios.

Changing time horizon may necessitate changes in asset mix. Changes in wealth may alter the client's risk preference. New securities may allow asset allocation shifts with lower transaction costs or create more efficient portfolios.

Impact of trades on security prices represents a cost of rebalancing.

Changing time horizon may necessitate changes in asset mix. Changes in wealth may alter the client's risk preference. New securities may allow asset allocation shifts with lower transaction costs or create more efficient portfolios.

Changing time horizon may necessitate changes in asset mix. Changes in wealth may alter the client's risk preference. New securities may allow asset allocation shifts with lower transaction costs or create more efficient portfolios.