Question

An investor does not need to constantly modify their portfolio make-up, but wishes to have a certain level of freedom to make adjustments to the portfolio over a 20-year timeframe. The investor would like to keep transaction costs and tax consequences as low as possible and likes to keep risk levels low as well. Which of the following would be good choices for an investor who has these characteristics?

It would be suitable for this investor to day trade using a high degree of leverage.
It would be suitable for this investor to use a rebalancing strategy.
It would be suitable for this investor to use a buy and hold strategy.
It would be suitable for this investor to use a strategic asset allocation approach.

[A] I and II only
[B] II and III only
[C] II and IV only
[D] III and IV only

Answer 1

C. II and IV

Step-by-step explanation:

Since the investor is aimed at maintaining his freedom to adjust the portfolio but also want to keep transactions cost, tax, risk, etc low, the investor will have to use a strategic asset allocation strategy or a rebalancing strategy.

This strategies helps to balance investments and allow investor flexibility. Unlike the other strategies in I and III, I has high risks involved as well as requires a high capital which is not conforming with the mindset of the investor. III on the other hand, keeps transaction cost and tax low but gives no freedom to the investor. This also negates the aim of the investor.

Cheers.