Introduction to the Portfolio Dedicated Strategy 5.00 / 5 (100.00%) 1 vote

If you are looking for an introduction to the portfolio dedicated strategy, you can begin right here. You are probably familiar with the concept of a dedicated account. This is a bank account dedicated to or meant for a particular purpose. Some countries have dedicated accounts where some of the revenues they earn are kept because the money here is used for specific projects. Individuals also have dedicated accounts because the money in these accounts is meant for specific future needs or emergencies.

Introduction to the Portfolio Dedicated Strategy

The concept of portfolio dedicated strategy is a variation of the basic concept mentioned above. This is because the portfolio manager and the investor may anticipate a certain market situation in future. Based on the calculation of the portfolio manager, dedicated portfolios are created to manage risk and earn future income. This concept is quite simple. It works because it is carefully worked out using long-term data backed up by market analysis over a certain period. Some of the most effective methods of dedicated investing are immunization, duration and asset allocation.

In its purest form, immunization simply means locking in your cash flow needs with the future earnings from a safe and valuable investment like a bond or a bullet. For example, you will need about $30,000 in five years time to replace the car you are driving now and you have about $300,000 in your deposit account. You can invest your money in a carefully chosen zero coupon bond now. Assuming the earning from the bond is just 2% per year, in five years you will earn at least 10% of your $300,000. This is the $30,000 you need for a new car right there. Technically speaking, you have immunized yourself so that you will not lack the much-needed $30,000 five years from now.

Duration is another effective form of dedicated investing. In this case, you align your future need with the maturity of a safe long-term investment. This is usually done with fixed-income assets like municipal bonds. You invest in the bond knowing exactly how much you will get from the investment as well as the duration of that investment. On the maturity date of the bond, you get your cash and you use it for the purpose it was meant for at the time you invested your money.

Asset allocation is used by pension managers and institutional investors in many instances. A good example is the allocation of a particular profit-bearing asset to pay pensions to retired workers who have signed up to a particular pension plan. This method works perfectly because the pension fund administrator knows exactly when the workers in question are going to retire so the right assets are allocated to meet this future need.

Portfolio dedication can be used by individuals and corporate organizations to achieve very good results. It is basically a matter of strategic planning and effective timing plus favorable market conditions. This is your introduction to the portfolio dedicated strategy. As you can see, it is easy to understand when you break it down into basic components.

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