Canadian Securities Course (CSC) Level 2 Practice Exam

Which factor is crucial in asset allocation during different economic cycles according to the portfolio management process?

1. Unique investment opportunities

2. Client's age

3. Market volatility

4. Understanding economic indicators

The correct answer is: Client's age

The emphasis on the client's age in asset allocation during different economic cycles is indeed significant because it directly relates to the investor's time horizon and risk tolerance. As investors age, they often shift their investment strategies toward more conservative assets to preserve capital, especially as they approach retirement. Younger investors may have a higher risk tolerance and can allocate a greater portion of their portfolio to equities, which have the potential for higher returns over a longer period. Therefore, understanding where a client is in their life cycle helps in tailoring a suitable investment strategy based on their financial goals and the economic environment. While unique investment opportunities, market volatility, and understanding economic indicators are all important factors in portfolio management, they tend to focus more on specific situational aspects of investing rather than the overarching, strategic approach related to a client's evolving needs and circumstances over time.