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Questions and Answers
For a client with a medium risk tolerance and a 10-year investment horizon, what sector is the diversified investment strategy focused on?
For a client with a medium risk tolerance and a 10-year investment horizon, what sector is the diversified investment strategy focused on?
The agricultural sector.
According to the 'Asset Allocation' strategy, what percentage should be invested in equities?
According to the 'Asset Allocation' strategy, what percentage should be invested in equities?
- 30%
- 50%
- 40% (correct)
- 20%
What type of REITs should investors focus on according to the 'Asset Allocation' strategy?
What type of REITs should investors focus on according to the 'Asset Allocation' strategy?
REITs that specialize in agricultural land or facilities.
According to the asset allocation strategy, what percentage of corporate bonds should be allocated from stable agricultural companies?
According to the asset allocation strategy, what percentage of corporate bonds should be allocated from stable agricultural companies?
According to the asset allocation strategy, what percentage of invesments should be in agricultural commodities (corn, wheat, or soybeans)?
According to the asset allocation strategy, what percentage of invesments should be in agricultural commodities (corn, wheat, or soybeans)?
What is the expected annual return range for the diversified approach under normal market conditions?
What is the expected annual return range for the diversified approach under normal market conditions?
If the client's risk tolerance decreased significantly, to what percentage should equities be reduced?
If the client's risk tolerance decreased significantly, to what percentage should equities be reduced?
If the client's risk tolerance decreased significantly, what percentage should bonds be increased to?
If the client's risk tolerance decreased significantly, what percentage should bonds be increased to?
If a client's risk tolerance decreases, Commodities should be eliminated.
If a client's risk tolerance decreases, Commodities should be eliminated.
If the client's risk tolerance decreases, what is the expected return after adjusting the investment strategy?
If the client's risk tolerance decreases, what is the expected return after adjusting the investment strategy?
Flashcards
Asset Allocation
Asset Allocation
Percentage of portfolio allocated to different asset classes.
Agricultural Equities
Agricultural Equities
Investing in companies involved in farming and food processing.
Agricultural REITs
Agricultural REITs
Companies that own or finance agricultural land and facilities.
Agricultural Bonds
Agricultural Bonds
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Agricultural Commodities
Agricultural Commodities
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Commodity ETFs
Commodity ETFs
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Expected Return
Expected Return
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Risk Tolerance
Risk Tolerance
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Investment Horizon
Investment Horizon
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Diversification
Diversification
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Portfolio Stability
Portfolio Stability
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Portfolio Income
Portfolio Income
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Deere & Company
Deere & Company
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Archer Daniels Midland
Archer Daniels Midland
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Capital Preservation
Capital Preservation
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Volatility
Volatility
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Moderate Growth
Moderate Growth
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Inflation Protection
Inflation Protection
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Dividends
Dividends
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Decreased Risk Tolerance
Decreased Risk Tolerance
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Study Notes
- A diversified investment strategy for a client with a medium risk tolerance, a 10-year investment horizon, and an interest in the agricultural sector is outlined below
Asset Allocation
- Equities: 40% allocated to agricultural companies involved in farming, food processing, and agricultural technology; could include stocks of companies such as Deere & Company or Archer Daniels Midland
- Real Estate Investment Trusts (REITs): 20% allocated to REITs specializing in agricultural land or facilities, which provides exposure to the agricultural sector and offers potential income through dividends.
- Bonds: 30% allocated to corporate bonds from stable agricultural companies, which provides fixed income and reduces overall portfolio volatility.
- Commodities: 10% allocated to agricultural commodities like corn, wheat, or soybeans through ETFs, which adds inflation protection and diversification.
Expected Return Profile
- Aims for moderate growth, with equities potentially offering higher returns over the long term, while bonds and REITs provide stability and income.
- The expected annual return could range from 6% to 8%, depending on market conditions.
Adjustments for Decreased Risk Tolerance
- Reduce Equities to 20% by shifting funds from equities to more stable investments
- Increase Bonds to 50% to provide more stability and lower risk
- Maintain REITs at 20% for income and diversification
- Eliminate Commodities to avoid the volatility associated with them
Revised Strategy
- Focuses on capital preservation and provides lower volatility while still offering some exposure to the agricultural sector
- The expected return would likely decrease to around 4% to 6%.
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Description
Diversified investment strategy focused on the agricultural sector. Includes equities in farming and food processing, REITs specializing in agricultural land, and corporate bonds from stable agricultural companies. Allocation also covers agricultural commodities through ETFs for inflation protection.
