Time Value of Money and Optimal Portfolio Diversification

14 Pages Posted: 9 Aug 2019

Date Written: August 6, 2019


Investing is putting money to work today in exchange for more money tomorrow, and the present value formula precisely defines this trade off. This formula also contains the primary economic factors that drive asset class returns and are fundamental to optimal portfolio diversification: expected growth, expected inflation, and a discount rate. This paper shows that there is far greater impact from diversifying to growth and inflation surprises than from holding a little bit of all global asset classes.

Keywords: risk factors, risk parity, optimal portfolio, diversification, growth, inflation, risk premium

JEL Classification: G11, G12

Suggested Citation

Shanbhag, Maneesh, Time Value of Money and Optimal Portfolio Diversification (August 6, 2019). Available at SSRN: https://ssrn.com/abstract=3433093 or http://dx.doi.org/10.2139/ssrn.3433093

Maneesh Shanbhag (Contact Author)

Greenline Partners, LLC ( email )

521 5th Avenue
Suite 1706
New York, NY 10175
United States
6464708714 (Phone)

HOME PAGE: http://www.glinepartners.com

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