For the pension plan of a company XYZ, the strategic asset allocation is 60% in global equity and 35% in global fixed income and 5% in US cash.

 

The pension plan sponsor of company XYZ wants to reduce the risk of the portfolio. His suggestion is to increase the cash allocation from 5% to 20% since cash is the "risk-free" asset. Considering cash as an asset and as an investment in a pension portfolio, do you agree with his suggestion? Why?

Answer rating: 100% (QA)

Increasing the cash allocation from 5 to 20 in the pension portfolio to reduce risk may not be an optimal strategy While cash is often considered a ri... View the full answer