What is the main goal of a prudent investment strategy?

Question

Options

• Arisk/return considerations
• Bmaximization of investable assets
• Cmaintaining sufficient liquidity through an asset-liability matching strategy
• DAll of the above

• A
  6% (2)
• B
  12% (4)
• C
  3% (1)
• D
  79% (26)

Explanation

Option D is correct because a prudent investment strategy is inherently comprehensive - it must simultaneously balance risk against potential returns, grow the asset base, and ensure enough liquidity to meet obligations as they come due. None of A, B, or C is "wrong" on its own; they are each partial truths, which is precisely why treating any one of them as the sole goal would be imprudent. A strategy focused only on maximizing assets (B) could expose a portfolio to ruin if a large liability comes due during a downturn; one focused only on liquidity (C) might sacrifice returns unnecessarily; and pure risk/return optimization (A) ignores the liability side entirely.

Memory tip: Think of the three letters R-L-A - Risk/return, Liquidity, Assets. A prudent investor manages all three, so whenever you see "prudent strategy" on an exam, the answer is almost always the most inclusive option.

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