Liability Matching

AAA

DEFINITION of 'Liability Matching'

An increasingly popular investment strategy that attempts to time future assets sales and income streams to match against expected future expenses. The strategy has become widely embraced among pension fund managers, who attempt to minimize a portfolio's liquidation risk by ensuring asset sales, interest and dividend payments correspond with expected payments to pension recipients. This stands in contrast to simpler strategies that attempt to maximize return without regard to withdrawal timing.

INVESTOPEDIA EXPLAINS 'Liability Matching'

Liability matching is growing in popularity among sophisticated financial advisers and wealthy individual clients, who are using multiple growth and withdrawal scenarios to ensure that adequate cash will be available when needed. The use of the Monte Carlo method of analysis, which uses a computer program to average the results of thousands of possible scenarios, has grown in its popularity as a time saving tool used to simplify a liability matching strategy.

RELATED TERMS
  1. Pension Fund

    A fund established by an employer to facilitate and organize ...
  2. Liability

    A company's legal debts or obligations that arise during the ...
  3. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  4. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  5. Monte Carlo Simulation

    A problem solving technique used to approximate the probability ...
  6. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
Related Articles
  1. Home & Auto

    Filling The Gaps In General Liability Insurance

    Standard liability coverage may not be enough. Special needs call for specialized policies.
  2. Professionals

    Meeting Your Fiduciary Responsibility

    Being a fiduciary comes with a certain level of responsibility. These four steps will reduce your liability when managing other people's money.
  3. Retirement

    Is Your Defined-Benefit Pension Plan Safe?

    Your plan may not last in a rocky market. Find out whether your savings will be affected.
  4. Active Trading Fundamentals

    Bet Smarter With The Monte Carlo Simulation

    This technique can reduce uncertainty in estimating future outcomes.
  5. Options & Futures

    Strategies For Withdrawing Retirement Income

    You've accumulated the wealth you need to retire, but how will you distribute it? We'll lay out some options.
  6. Retirement

    Mortgage Asset-Liability Management Made Easy

    Should you refinance your mortgage to purchase other assets? Learn how to weigh your risk.
  7. Home & Auto

    Protect Your Company From Employee Lawsuits

    Understanding employment practices liability insurance is easy, once you know the basics.
  8. Investing

    Are Women Steadier Long-Term Investors?

    We look at the differences in behavior between male and female and found that women are steadier customers when it comes to following allocation advice.
  9. Mutual Funds & ETFs

    Why Mutual Funds Lose Their Five-Star Ratings?

    Ratings help people feel confident about their decision before purchasing. Morningstar’s rating system helps people to find and invest in mutual funds.
  10. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center