A financial advisor is helping a new client, Jane, establish her investment goals and risk tolerance. Jane expresses that she wants a portfolio that will provide moderate growth but also protect against significant losses. She anticipates needing access to some funds within the next five to seven years for a down payment on a larger home. Which asset allocation approach would best suit her needs, and why?

Question: A financial advisor is helping a new client, Jane, establish her investment goals and risk tolerance. Jane expresses that she wants a portfolio that will provide moderate growth but also protect against significant losses. She anticipates needing access to some funds within the next five to seven years for a down payment on a larger home. Which asset allocation approach would best suit her needs, and why?

Answer options:

• A purely tactical allocation, allowing for frequent shifts based on market sentiment to maximize short-term gains due to her mid-term goal. ✅ A strategic asset allocation with a balanced approach, suitable for moderate growth and capital preservation over her medium-term horizon.
• An aggressive growth strategy, as her income is high, and she can recover from short-term market downturns, even with a mid-term goal.
• A conservative income-focused approach, ensuring immediate access to capital for her down payment, sacrificing long-term growth potential.

Correct answer: A strategic asset allocation with a balanced approach, suitable for moderate growth and capital preservation over her medium-term horizon.

Explanation: A strategic asset allocation with a balanced approach is best for Jane. This strategy aims for a mix of moderate growth and capital preservation, aligning with her stated desire for both growth and protection against losses over her medium-term five-to-seven-year horizon, which is consistent with strategic planning.