Canadian Securities Course (CSC) Level 2 Practice Exam

What is the second step in the portfolio management process?

1. Design IPS

2. Develop asset mix

3. Determine objectives and constraints

4. Select securities

The correct answer is: Design IPS

The second step in the portfolio management process is to develop an asset mix. This step follows the establishment of objectives and constraints, which is the first phase. In the portfolio management process, determining the investor's objectives and constraints is crucial, as it guides the subsequent steps. Once these parameters are clear, developing an appropriate asset mix becomes essential because it involves strategically allocating investments across various asset classes, such as equities, fixed income, and cash equivalents. This asset allocation is pivotal to align with the investor's risk tolerance and financial goals. While designing an Investment Policy Statement (IPS) is important, it generally encapsulates the overall strategy and guidelines for managing the portfolio, rather than representing a direct step in the allocation process. Selecting securities comes later and hinges on the predetermined asset mix, highlighting the logical progression of steps within portfolio management.