DEFINITION of 'Dedication Strategy'

A method by which the anticipated returns on an investment portfolio are matched with estimated future liabilities. A dedication strategy is frequently used in pension funds and insurance company portfolio to ensure that future liabilities can be met. An institution, such as an insurance company, can estimate future liabilities and try to minimize its outlay to satisfy future liabilities through its anticipated investment earnings.


Also called portfolio dedication, cash flow matching and structured portfolio strategy.

BREAKING DOWN 'Dedication Strategy'

A dedication strategy involves cash flow matching so that investment earnings will provide funds for anticipated future capital outlays. Pension funds and insurance companies can fairly accurately predict future liabilities, which tend to be large. Their portfolios typically include low-risk, investment-grade securities, such as medium- or high-rated bonds, that allow for fairly predictable earnings to match to projected future capital outlays.

RELATED TERMS
  1. Mismatch

    Mismatch generally refers to incorrectly or unsuitably matching ...
  2. Matching Strategy

    Matching strategy is the acquisition of investments whose payouts ...
  3. Total Liabilities

    The aggregate of all debts an individual or company is liable ...
  4. Long-Term Liabilities

    In accounting, a section of the balance sheet that lists obligations ...
  5. Adjusted Liabilities

    The liabilities of an insurance company that differ from the ...
  6. Business Liability Insurance

    Business liability insurance protects a company and/or business ...
Related Articles
  1. Investing

    Portfolio immunization versus cash flow matching

    Understand how immunization and cash flow matching come into play when taking an asset-liability management (ALM) approach to investing portfolios.
  2. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  3. Insurance

    An Advisor's Guide to Prof. Liability Insurance

    A guide to what financial advisors need to know about professional liability insurance.
  4. Retirement

    5 Big Companies That Have Cut Out Pension Plans

    Companies are putting the responsibility of saving for retirement on the employee.
  5. Small Business

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
  6. Insurance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  7. Financial Advisor

    How Capital Gains Tax Works on Pension Funds

    Here's why capital gains tax does not affect the assets in pension funds.
RELATED FAQS
  1. What is the difference between legal liability and public liability?

    Discover the differences between a general legal liability, a specific public liability and a professional indemnity in the ... Read Answer >>
  2. On which financial statements does a company report its long-term debt?

    Discover which financial statements are used to report a company’s long-term debt, as well as how a company uses debt to ... Read Answer >>
  3. What are the official FASB guidelines regarding contingent liabilities

    Learn how the Financial Accounting Standards Board, or FASB, treats the recognition, estimation and disclosure of contingent ... Read Answer >>
  4. How do I calculate current liabilities in Excel?

    Learn what current liabilities are and examples of a company's current liabilities, and find out how to calculate total current ... Read Answer >>
  5. Can working capital be negative?

    Negative working capital can arise under certain circumstances. Working capital can be negative if a company's current assets ... Read Answer >>
  6. How much do changes in interest rates affect the profitability of the insurance sector?

    Learn about the relationship between interest rates and insurance company profitability, and how interest rates can affect ... Read Answer >>
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center