Asset Allocation with Real-World Constraints

Free CFA Level III: Portfolio Management lesson in Asset Allocation. 24 min read, ~3,589 words.

Every real constraint moves the portfolio off the efficient frontier; the question is whether the deviation is justified. Asset size determines which asset classes are accessible (minimums for small portfolios, market impact for large ones). Liquidity constraints tighten during stress, exactly when liquidation costs are highest. Taxes are the most...