Prioritizing Portfolio Construction Elements

Hard Investment Policy And Allocation Portfolio Construction

Consider a client who has approached an investment advisory firm to construct a comprehensive investment portfolio. The client's objectives include a targeted annual return of 8%, a moderate risk tolerance, and a time horizon of 10 years. The advisor has a range of asset classes available, including equities, fixed income, commodities, and real estate. To best construct an effective investment policy statement (IPS) for this client, what should be prioritized in the portfolio construction process?

Maximizing the allocation to equities to achieve the desired return regardless of risk.

Balancing the asset allocation to align with the client’s risk tolerance while aiming for the target return.

Investing only in low-risk fixed-income securities to ensure capital preservation.

Hint

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