Finance management?

Suppose you owned a portfolio consisting of $250,000 worth of long-term U.S. government bonds.

a. Would your portfolio be riskless?

b. Now suppose you hold a portfolio consisting of $250,000 worth of 30-day Treasury bills. Every 30 days your bills mature, and you reinvest the principal ($250,000) in a new batch of bills. Assume that you live on the investment income from your portfolio and that you want to maintain a constant standard of living. Is your portfolio truly riskless?

c. Can you think of any asset that would be completely riskless? Could someone develop such an asset? Explain.

No investment is riskless. Bonds have interest rate risk--your money is tied up while rates are going up and your money should make more money. Even short term treasury bills have that risk. And, the less risky the investment looks, the greater the real risk--that you won't get enough return on your investment to meet your needs.

government bonds are your most secured, but you best bet is not to place all of your eggs in one basket. Invest maybe 10% in stocks, another 20% in funds.

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