What does low risk mean for a long horizon investor

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Assignment

Taking the perspective of a diversified fund manager with a long term horizon who holds a substantial portfolio of fixed income instruments with a view to keeping down the risk of the portfolio, do you find this argument about duration targeting convincing?

In particular you may want to think about the following issues

1. What does low risk mean for a long horizon investor?

2. Is the standard deviation of holding returns over some horizon the right way of thinking about risk?

3. Does a long duration bond portfolio achieve this low risk status more or less effectively than cash and money market instruments?

4. Are the simulations in the spreadsheet convincing? If they are not convincing, can you generate simulations that are convincing? Or can you propose a different approach which would substantiate or rebut the argument?

5. Are there any other issues that would affect the attractiveness of this strategy for fixed income investors?

Reference no: EM131697515

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