Chartered Retirement Planning Counselor (CRPC) Practice Exam

The first step in asset allocation involves determining which asset classes to include in a portfolio. This foundational decision sets the stage for how investments will be diversified across various types of assets, such as stocks, bonds, real estate, and alternative investments. By identifying the relevant asset classes, an investor can establish a framework that aligns with their financial goals, risk tolerance, and time horizon.

This initial step is crucial as it informs the subsequent decisions regarding the percentage allocations within each asset class, expected returns, and specific investment choices. For instance, an investor may decide to include equities for growth potential and bonds for stability, impacting the overall risk profile of the portfolio. Understanding the different asset classes available is essential for creating a balanced and effective investment strategy that meets the investor's needs.

Once the asset classes are identified, the investor can proceed to estimate expected returns, determine the percentage distribution among bonds or other assets, and calculate the total amount to invest, which are all vital to refining the asset allocation strategy.