Occasionally, interviewers will ask a question like this. If you are a young individual going for a summer analyst or full-time analyst position, is there a type of answer they're generally looking for? Is a well-thought out explanation, demonstrating you know the markets and can think logically all that's basically important.
Interview Question: How Would You Invest $1 MM?
This is a common interview question and when answering - what matters is your thought process.
- A smart way to start answering this question is to ask a follow up question: who am I investing the money for? If you're investing money for yourself (a ~20 year old) you will be more aggressive in your allocation than if you are investing for your grandmother.
- Once you've established who you are investing for you should break up your asset allocation into stocks vs. bonds. If you are investing for the 20-year-old you might say that you'd invest in 90% stocks and 10% bonds and explain the rationale that you should be more aggressive as a young investor with a long runway to build wealth. For a middle age person you might propose a 50-50 split between stocks and bonds.
- The next thing to consider would be specific allocations. One way to do this would be to do look at sector investments within the asset class - IE "Within the equity pie, I would look to invest in IT and Healthcare for growth and Utilities for security and dividends.
- Alternatively, instead of doing sector allocations you could have a few specific names / etfs that you would invest behind if you would like to be more specific or if you would like to highlight you interest in stock picking
Within this method, what really matters is your thought process. Explain everything as you go along. Don't make any unspoken assumptions about the client or the environment.
A user shared another good template for answering this question that is more nuanced and appropriate for a more experienced individual that wanted to show some serious finance acumen.
"If you were given $1MM to invest, where would you invest it?"
A: I would want to know a few things about the overall expectations, duration, liquidity requirements, etc. Then you should expand on a duration and risk appetite by saying something like "Assuming it is a pension fund looking to invest over a 2-year horizon, I would recommend overweight in ____, underweight in ____, etc. Further, some personal equity preferences of mine include x1,x2,x3 (know the companies you pitch).
Read More About How to Answer This Question on WSO
- $1 Million Investment Question
- If You Were Given $20 Million In Cash, How Would You Invest It?
- How Would You Invest $1 Million?
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