Lets say you are asked to pick between a few asset allocations. If you pick one and are asked to justify, is it OK to note why the other allocations were not sufficient?
I plan on incorporating why the others dont meet in my justifications of why i picked the allocation i did. For example if I choose Allocation A and it asks for 2 justifications i will try and say: 1) Allocation A met the required returns of 6%. Allocations B&C do not meet the return requirement, therefore can not be valid allocations. 2) Allocation A meets the liquidity needs of the portfolio by keeping 100k in cash, which allocation D does not meet.
what about “allocations B&C do not meet return requirement” as its own justification?
I’m going to take the approach as justify why A first and then compare to B & C in the answer. Similar to what CFADreams mentioned. I think in justifying B&C as answer can often be classified as general knowledge and maybe not as direct as what the graders want. CFAI rec’s on L3. - Points are awarded for direct answers to a question. - No points are awarded for general knowledge that is not responsive to the question.
It is within CFAI text that comparing assets allocations is allowable. the dimensions to compare are; 1. has return requirement been met 2. does risk profile of portfolio compare to investors risk tolerance 3. highest sharpe ratio 4. are the asset classes well diversified 5. liquidity requirements met (typically by 2- 4% cash, anymore may be introduce a cash drag on returen) 6. unique circumstances eg SRI
It is within CFAI text that comparing assets allocations is allowable. the dimensions to compare are; 1. has return requirement been met 2. does risk profile of portfolio compare to investors risk tolerance (short fall measure may be specified) 3. highest sharpe ratio 4. are the asset classes well diversified 5. liquidity requirements met (typically by 2- 4% cash, anymore may be introduce a cash drag on returen) 6. unique circumstances eg SRI
I think it is pretty obvious that if A is the right allocation, then B&C are not. So, give reasons why A is right, and move on. TO THE POINT !. Don’t Ask, Don’t tell.
agree with sparty here
100% agree with the previous two posters. Unless the question is “what allocations DO NOT meet the criteria”, there is no reason to name any allocations save for the “correct” allocation. Saying “B is right because the others aren’t” will not earn you very many points, even if you are correct.
I asked the same question a few days ago. I agree it’s a read the question, answer the question issue - but I wasn’t 100% because the guideline answers seem to both justify the correct portfolio, and disprove the others.
guideline answers are just for helping you understand. Exam answers should just answer what has been asked.