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Abstract: 

Investment portfolios have become an integral part of financial decision making in government, especially as governments continue to struggle for more revenues to meet their increasing financial needs. Historically, investment managers in government, as in the private sector, have focused on a specific security that can produce the highest return in the shortest possible time, rather than the portfolio as a whole, and this has led to occasional disappointments and even serious financial losses. Evidence indicates that the financial interest of a government will be better served if the investment managers spend time constructing a well-designed portfolio consistent with the organization’s goals and objectives rather than searching endlessly for securities that may not produce the desired result. This paper suggests that simple, commonsense techniques based on experience and prudent judgment, such as heuristic methods, can help produce portfolios that will be far more effective and less costly than those produced by the conventional methods.

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Affiliations:  1: Texas Tech University.