Optimal Portfolio with Pension under Three Models: Mean-Variance, CAPM and FF3F

Abstract

In recent years, an increasing number of people are investing their money to increase their total wealth and maintain their quality of life after retirement. How to choose the optimal portfolio is a key part of financial management. This study chooses six assets which performs relative well in different industries together with one’s pension which is regarded as an asset accounting for a solid weight. This paper uses three models: Mean-Variance analysis, CAPM and FF3F model to build the optimal portfolio to maximize sharp ratio and minimize variance respectively. The result shows that, in the mean-variance model, GLD takes up the largest weight both in the maximize sharp ratio portfolio and minimize variance portfolio. While under the CAPM and FF3F model, QQQ accounts for the largest weight in the maximize sharp ratio portfolio while GLD accounts for the largest weight in the minimize variance portfolio. The results in this paper may provide some recommendations for firefighters who wants to make an investment portfolio with pension.