DEFINITION of 'Matching Strategy'

The acquisition of investments whose payouts will coincide with an individual or firm's liabilities. Under a matching strategy, each investment is chosen based on the investor's risk profile and cash flow requirements. The payout might consist of dividends, coupon payments or principal repayment.

For example, retirees living off the income from their portfolios may require stable and continuous payments. A matching strategy would involve the strategic purchase of securities to pay out dividends or interest at regular intervals. A pension fund would employ a similar strategy.

BREAKING DOWN 'Matching Strategy'

In business, the term "matching strategy" may refer to the financing of assets so that the duration of the asset's financing coincides with the asset's lifespan in order to reduce the firm's financial cost risk and refinancing risk.

By using a matching strategy, the firm knows that it will have financing for as long as it needs and knows what the cost of that financing will be. Because a matching strategy pairs the durations of assets and liabilities, it is considered a type of immunization strategy.



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