A portfolio manager is designing a portfolio for a client with a very high-risk tolerance and a long-term investment horizon (over 20 years). The client is aiming for aggressive capital appreciation. Which portfolio strategy would be most aligned with these objectives?

Question: A portfolio manager is designing a portfolio for a client with a very high-risk tolerance and a long-term investment horizon (over 20 years). The client is aiming for aggressive capital appreciation. Which portfolio strategy would be most aligned with these objectives?

Answer options:

• A balanced portfolio with equal weighting in equities and fixed income. ✅ A growth-oriented portfolio with a significant overweighting in small-cap domestic equities.
• A defensive portfolio focused on high-dividend utility stocks and government bonds.
• A portfolio heavily weighted towards short-term money market instruments.

Correct answer: A growth-oriented portfolio with a significant overweighting in small-cap domestic equities.

Explanation: A high-risk tolerance and long-term horizon aiming for aggressive capital appreciation warrant a growth-oriented portfolio, which typically means a high allocation to equities, especially those with higher growth potential like small-cap stocks.