Accredited Wealth Management Advisor Practice Exam

What are common factors that can undermine an investment strategy?

1. Risk aversion and rigid investment discipline

2. Inadequate time horizons and emotional decision-making

3. Inadequate time horizons and unrealistic expectations

4. Rigid investment discipline and charismatic persuasion

The correct answer is: Inadequate time horizons and unrealistic expectations

The selection of inadequate time horizons and unrealistic expectations is fitting because these factors significantly impact the effectiveness of an investment strategy. Inadequate time horizons can lead investors to make impulsive decisions based on short-term market fluctuations rather than allowing their investments the necessary time to mature and potentially yield favorable returns. A broader investment strategy typically entails the understanding that many investments require time to grow as they recover from volatility and ultimately appreciate in value. Unrealistic expectations can also derail an investment strategy as they often set investors up for disappointment. When investors expect excessively high returns based on limited market understanding or historical performance, they may be prone to rash actions, like selling investments prematurely during downturns, thereby missing out on recovery opportunities that align with their investment goals. These two factors together create a situation where investors are not appropriately aligned with the realities of market behavior, leading them to undermine their original strategies. In contrast, other answer choices, while they denote factors that can influence investment strategies, do not encapsulate these two critical elements relating to time and expectations as directly and effectively.