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Question 7 week 3

Investment Strategies

It is natural to assume that there is no such thing as a one-size-fits-all ' investment strategy that applies equally well for households , corporations , and endowment funds . However , although the strategies for each of these areas should in principle be different and specifically targeted , they each share some very important aspects Thus , it can be said that there is indeed a one-size-fits-all strategy , although such a strategy , because of its generalized nature is far from optimally efficient (Merton ,

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When it comes to households , for example , some specifics that

can be added to the traditional analysis of risk-return trade-offs for tangible wealth including a riskless asset ' include explicit analyses of human capital , hedging of reinvestment rates , mortality and traditional insurance risk , and income and estate taxes (Merton ,

br 22 . When it comes to endowment funds , specific assets must again be considered . A university 's endowment funds , for example , would include its buildings , future tuition receipts , and potential gifts and bequests (Merton ,

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It is much wiser to utilize investment strategies that are targeted to a specific area . In fact , there is a tendency among investment managers and advisors to rely upon strategies that are generally applicable to all three , even if such a reliance on generalized strategies is not necessary . Instead of persisting with this tradition , using more targeted and efficient means can lead to better results (Merton ,

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Reference

Merton , R . C (2003 . Thoughts on the future : Theory and practice in investment management . Financial Analysts Journal , 59 , 1 , 17-23

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Investment Strategies...

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