Answer to Question #252121 in Macroeconomics for Biba

Question

5. Explain why the best portfolio should not contain any money (use information from Section D of this chapter). How does the notion of the cost of holding money fit into your answer? Would your answer change if your checking account earned a return equal to that of riskfree investments?

Answer 1

Through investing in several categories of assets, this minimizes risk related to money loss as the investment returns for a portfolio will be secured. Holding money never increases its value. Therefore, money can gain income by only investing.