Question of the Week

Tiffany's brother, Jamal, is a new investor but believes that the markets are basically efficient and that he doesn't have the knack for or interest in predicting trends. He also believes in saving money on transaction costs and taxes. Jamal's investment style is best described by which of the following:

A) Tactical asset allocation
B) Diversification
C) Buy and hold


The correct answer is C).

A buy-and-hold strategy describes a passive investment approach. This approach assumes that markets are efficient and that it is impossible to time the purchase or sale of securities or to manage the balance of assets in order to take advantage of market movements. Since this is a passive strategy, there are reduced transactions costs and also reduced tax consequences. The downside to a buy-and-hold approach is that over time, the risk and reward of the asset allocation will change and may not be in alignment with the client's original risk tolerance and objectives.

Professionals FAQs
  1. Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
  2. If I am looking to get an Investment Banking job. What education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The caveat here is that the MBA would most probably need to be from a Top-20 B-School.The Chartered Financial Analyst (CFA) is well worth considering if you (a) are aiming for an entry-level position in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level.
  3. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it. The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam.
  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.