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US CFP · Selected study notes

CFP portfolio construction for household goals

Assign assets to goals before selecting an allocation. Money needed soon has different loss capacity from a flexible long-term goal. Evaluate the household’s combined exposures, including employment and concentrated holdings.

The decisions to learn first

  • Near-term, essential

    Portfolio implication
    Prioritize availability and the consequence of loss
    What to verify
    Amount due and assets already earmarked

  • Long-term, flexible

    Portfolio implication
    Evaluate growth and volatility tradeoffs
    What to verify
    Savings capacity and ability to delay the goal

  • Employer-stock concentration

    Portfolio implication
    Consider job and portfolio risk together
    What to verify
    Taxes, restrictions and diversification options

  • Allocation drift

    Portfolio implication
    Compare current weights with the target
    What to verify
    Transaction costs and tax consequences of rebalancing

Where this fits in the CFP exam

This application sits primarily within Investment Planning and connects to retirement and general planning. It has no separate exam weight. Use the investment-domain note for return fundamentals and this lesson for household allocation choices.

Avoid counting the same money twice

Create separate goal rows with an amount and deadline. If a $40,000 reserve is assigned to a home purchase, it cannot simultaneously fund retirement unless the plan explicitly reallocates it.

An allocation recommendation should explain why it fits the goal, not merely cite age. Review the household’s other assets and liabilities so a diversified account does not conceal concentration elsewhere. Rebalancing restores an intended exposure; it is not a forecast that a recent winner must fall.

  1. 1

    Segment

    List each goal, amount, date and flexibility.

  2. 2

    Assign

    Allocate resources once, making overlaps visible.

  3. 3

    Review

    Compare combined risk with the household’s capacity.

Case: set aside an essential goal before allocating the remainder

A household has $250,000 of investable assets and explicitly reserves $40,000 for a home payment next year. The case gives a 60/40 stock/bond target for the remaining long-term portfolio. The amount to which that target applies is $210,000, not the full $250,000.

The resulting long-term targets are $126,000 stocks and $84,000 bonds, with the $40,000 home reserve tracked separately. Applying 60% to the full balance would assign $150,000 to stocks and disregard the instruction about the reserve. This is a classification error before it is an arithmetic error.

Neither the reserve vehicle nor the 60/40 target is a universal recommendation. They are stipulated inputs. In a planning decision, the amount, deadline, loss capacity, taxes and available instruments must support the actual allocation.

  • Home payment reserve

    Calculation
    Stated amount
    Amount
    $40,000

  • Long-term stocks

    Calculation
    $210,000 × 60%
    Amount
    $126,000

  • Long-term bonds

    Calculation
    $210,000 × 40%
    Amount
    $84,000

  • Reconciled total

    Calculation
    Reserve plus long-term assets
    Amount
    $250,000

Rebalance with new cash when the case permits it

A portfolio containing $140,000 stocks and $60,000 bonds is 70% stocks. If $10,000 of new money goes entirely to bonds, the new stock weight is $140,000 divided by $210,000, or about 66.7%. The contribution reduces the drift but does not restore a 60% stock target.

To reach 60% without selling stock, the total would need to be $140,000 divided by 0.60, about $233,333.33. That requires roughly $33,333.33 of additional bonds, not $10,000. The calculation shows whether available cash is sufficient; taxes, costs and trading restrictions still affect how an actual rebalance is implemented.

Worked example: apply the rule

An original teaching example. All numerical assumptions are stated; this is not a released CFP Board question.

Original worked example

A $200,000 portfolio has a stated target of 60% stocks and 40% bonds. After market changes, it holds $140,000 of stocks and $60,000 of bonds. Ignore taxes, fees and market movement. What trade restores the target?

Bring the stock allocation back to target*

Illustrative values · common scale from zero to 70%

Current stock weight
70%
Stated stock target
60%
  1. 1Target stocks = $200,000 × 60% = $120,000.
  2. 2Target bonds = $200,000 × 40% = $80,000.
  3. 3Move $20,000 from stocks to bonds.

Sell $20,000 of stocks and buy $20,000 of bonds under the stated assumptions.

Watch for: Using the 70% current stock weight as the target, or treating the target as suitable for every household.

Change one fact: can you still solve it?

Attempt this original variation before revealing the answer. Explain which assumption changed and why it matters.

Try it

A $200,000 portfolio has $140,000 stocks and $60,000 bonds. A new $20,000 contribution is invested in bonds. With a 60/40 target and no other changes, what additional trade restores the target?

Reveal answer and reasoning

Move $8,000 from stocks to bonds.

Recalculate the total first: $220,000. Target stocks are $132,000 and target bonds $88,000. Current holdings after the contribution are $140,000 and $80,000, so the required transfer is $8,000.

Questions about this topic

Is this 60/40 allocation a recommendation?

No. It is a stated input for a rebalancing calculation. A suitable allocation depends on the client’s goals, constraints, taxes and capacity for loss.

How much of the exam does this topic represent?

This is an applied technique within broader domains. CFP Board does not assign it a separate published weight. Use the linked syllabus to check the complete domain allocations.

Sources and editorial notes

Source check: . MiloPrep editorial team. Official rules and provider descriptions are distinguished from our original examples and study suggestions.

US CFP scope. Study examples are simplified and are not individualized financial, tax or legal advice. No independent CFP professional review is claimed. MiloPrep is not affiliated with or endorsed by CFP Board or the compared providers.

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Notes

  • * Bring the stock allocation back to target: Original example: the 10-percentage-point difference on $200,000 equals $20,000. The target is supplied by the case, not recommended for every household. ↩ Return to content