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Investment strategy - Coggle Diagram
Investment strategy
Fundamental principles
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Any investment strategy should bear in mind the nature, term, currency and certainty of the liabilities
A matched investment position involves holding a portfolio that will behave in the same manner as the liabilities.
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Risk and reward
Equities were traditionally considered a highly suitable asset holding for final salary pension fund liabilities
Since they were expected to give the greatest long-term return and could be expected to provide a real return in the long term
However, there is no guarantee that equities will perform in the future, or that equity return will be closely correlated to salary inflation, even in the medium to long-term.
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A portfolio with a substantial proportion of bonds may be considered in order to more closely match the liabilities and reduce risk.
When you consider the possibility of a scheme winding up, the conflict between maximising expected return and minimising risk is more prominent
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