Portfolio Theory and Asset Allocation: Rapid Fire
Chapters in this video
- 0:00 When the most restrictive factor overrides aggressive risk tolerance
- 1:50 Asset allocation: strategic, tactical, and the rebalancing tax trap
- 3:37 Standard deviation vs. beta: total risk vs. systematic risk only
- 4:58 Correlation coefficient and the limit of diversification
- 6:58 Positive alpha: beating the market is not enough
- 8:27 Modern Portfolio Theory and the efficient frontier
- 9:32 Rapid-fire numbers recap
What this video covers
- Why the most restrictive factor wins when a customer's risk tolerance conflicts with time horizon or liquidity needs
- How preservation of capital, current income, growth, and speculation form a clear objective progression, and why growth is not speculation
- Why asset allocation dominates security selection and market timing as the most important determinant of long-term performance
- The tax trap that rebalancing in a taxable account triggers capital gains, while rebalancing in a tax-deferred account like an individual retirement account (IRA) or 401(k) does not
- How standard deviation measures total risk, beta measures only systematic risk, and why a concentrated portfolio still carries unsystematic risk
- Why diversification eliminates unsystematic risk but never systematic risk, and how correlation coefficient drives that benefit
- How to compute expected return with the Capital Asset Pricing Model (CAPM), solve for alpha, and spot undervalued versus overvalued securities
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.
Start on this site: free Series 7 practice questions · Series 7 pass rate