SIE Exam Dumps | Which of the following is the primary risk of using asset allocation models without periodic rebalancing?

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Question 12/80

Which of the following is the primary risk of using asset allocation models without periodic rebalancing?

A. Inflation

B. Marketability

C. Overweighting

D. Interest rate risk

Correct Answer: C

Step by Step Explanation:
* Rebalancing: Ensures that a portfolio remains aligned with its target allocation. Without rebalancing, outperforming assets can become overweighted, increasing exposure to specific risks.
* Incorrect Options:
* Inflation: Impacts purchasing power but isn't tied to rebalancing.
* Marketability: Refers to liquidity and isn't linked to allocation models.
* Interest Rate Risk: Relates to fixed-income investments and isn't directly addressed by allocation models.
References:
* SEC Investor Bulletin on Asset Allocation: SEC Asset Allocation.

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