Sample interview questions: What is your approach to asset allocation?
Sample answer:
Asset Allocation Approach
- Determine client goals and risk tolerance: Establish clear objectives for the portfolio, including return targets, time horizon, and acceptable level of volatility.
- Quantify return expectations and correlations: Utilize historical data, fundamental analysis, and economic models to estimate expected returns and correlations among various asset classes.
- Optimize portfolio for risk and return: Construct an asset allocation mix that balances the potential for return with the associated level of risk. Use mathematical optimization techniques, such as mean-variance optimization, to find the optimal portfolio weights.
- Diversify across asset classes and within each class: Spread investments across various asset classes (e.g., stocks, bonds, real estate, commodities) and subcategories within each class (e.g., large-cap vs. small-cap stocks) to reduce portfolio volatility.
- Consider alternative investments: Explore non-traditional asset classes, such as hedge funds, private equity, and venture capital, to enhance diversification and seek potential alpha generation.
- Rebalance regularly: Read full answer