The Politics of Public Fund Investing by Ben Finkelstein

Author:Ben Finkelstein
Language: eng
Format: epub
Publisher: Simon and Schuster
Published: 2006-07-15T00:00:00+00:00

Yes, the 3-month T-bill strategy carries a heavy opportunity cost. Assuming the investment plan for liquidity is in place, the only benefit to incurring that cost is the avoidance of a mark-to-market loss if interest rates rise. But is the benefit proportionate to the cost? Take a look at the calculations in Exhibit 6-5 and be the judge. Here we’ve calculated the worst-case one-time account period loss for Karl’s portfolio, juxtaposing it to the opportunity cost that Caroline’s fund would incur in choosing her 3-month T-bill strategy over Karl’s strategy based on higher-paying 2-year USTNs.

EXHIBIT 6-5

COST/BENEFIT COMPARISON:

WORST-CASE ACCOUNTING PERIOD LOSSES

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