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Matching Strategy
Old 12-12-2010, 04:23 PM   #1
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Matching Strategy

I have followed some of Zvi Bodie's work.

This Boglehead article describes Matching Strategy. This type of approach versus invest it all is often debated. Thought I would put it up for comment.

Quote:
In retirement planning use matching strategies for the retirement money you must have. Use portfolio diversification strategies for the remaining money you would like to have. Matching strategies are very safe, but offer little or no upside potential. Diversification strategies are risky, but offer relatively high expected returns and lots of upside potential.
Matching Strategy - Bogleheads
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Old 12-12-2010, 07:34 PM   #2
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Never heard the term "Matching Strategies" before and I assumed it was employer match for 401k contributions...it's not. Reading the link, I kept thinking about.......buckets!
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Old 12-12-2010, 08:54 PM   #3
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Quote:
Originally Posted by chinaco View Post
I have followed some of Zvi Bodie's work.

This Boglehead article describes Matching Strategy. This type of approach versus invest it all is often debated. Thought I would put it up for comment.

Matching Strategy - Bogleheads
Interesting! I was not familiar with this and enjoyed reading the article. Some of the matching strategy examples given might be consistent with investing it all, such as SS and pension which were given as retirement matching strategies. But other matching strategies are investments.

In retirement, I have tried to have enough rock solid fixed income (SS, pension, TSP "G Fund" distributions) to cover my bare bones expenses, and to obtain my non-essential expenses from more volatile investments. I guess this is sort of like what is being described, maybe.
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Old 12-12-2010, 09:21 PM   #4
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I hadn't thought about it those terms but when I transition to retirement, I will be using a matching strategy (although one that does not meet the criteria in the link because I do not use fixed interest investments for this purpose):

1. dividends and rents denominated in HK$ to meet my day to day expenses here in HK

2. dividends and rents denominated in NZ$ to meet the costs of living in New Zealand for 2-3 months a year

3. excess investments largely invested elsewhere for diversification

4. a float of (about) two years worth of expenses in cash or short term debt etc to provide a buffer against volatility in the HK$ cash flow from #1 (and an emergency fund).
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Old 12-14-2010, 09:44 AM   #5
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I've never seen the words "matching strategy" used in exactly this context. I think "buckets" is more common, but matching may be more accurate.
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Old 12-14-2010, 09:49 AM   #6
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I may have a mistaken idea of buckets. I thought "buckets"referred to a segration of funds according to when it is anticipated that they will be needed.

Matching appears to refer to funds segregated according to their expected usage. Matching appears to be very similar to defeasement.

OECD Glossary of Statistical Terms - Defeasement Definition

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Old 12-14-2010, 10:00 AM   #7
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This is very common in business... and for gvmts to 'pay off' high debt...


The best examples is a bank who matches deposits and CDs with their loans... usually they are not perfectly matched, but they try to match larger pools....

The example for a gvmt is if they had a high interest rate bond that they can not call.. they go to the market and issue low rate bonds and then buy zeros for the various interest payments and for payment of principal at the earliest time they can... there are some fed rules about arbitrage income etc. but it was done a lot when I was in the trust dept...
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