An investor's portfolio, initially set at 70% equities and 30% fixed income, has shifted over the past year to 85% equities and 15% fixed income due to strong market performance in the equity segment. What is the most appropriate action an advisor should recommend to maintain the client's risk profile?

Question: An investor's portfolio, initially set at 70% equities and 30% fixed income, has shifted over the past year to 85% equities and 15% fixed income due to strong market performance in the equity segment. What is the most appropriate action an advisor should recommend to maintain the client's risk profile?

Answer options: ✅ Sell some equities and buy fixed income to return to the original 70/30 allocation.

• Do nothing, as the increased equity allocation indicates higher returns.
• Sell some fixed income and buy more equities to capitalize on market momentum.
• Increase the equity target to 85% to align with the current portfolio composition.

Correct answer: Sell some equities and buy fixed income to return to the original 70/30 allocation.

Explanation: To maintain the client's original risk profile and adhere to the strategic asset allocation, the advisor should recommend rebalancing the portfolio. This involves selling a portion of the outperforming assets (equities) and buying underperforming assets (fixed income) to restore the target weights.