Pension-Gate - Show 129

Friday, July 11, 2014 10,418 views

Florida. Every year people make the jump down to the Sunshine State to live out their Golden Years. In a state where so many come to retire, you’d hope they at least have a handle on their own state’s pension plan. Unfortunately, it seems as though the state pension planners reside in Las Vegas rather than Boca Raton.

Yale Endowment CFO, David Swensen once said, "Active management strategies, whether in public markets or private, generally fail to meet investor expectations…In spite of the daunting obstacles to active management success, the overwhelming majority of market participants choose to play the loser's game."

An investigative journalist for the St. Petersburg Times, approached Index Fund Advisors and a handful of other investment experts to collect some in-depth analysis of the risks and returns of the Florida State Pension Plan for various periods of time relative to various index portfolio strategies. The research results were revealed in a July 31, 2011 article titled, "Easy investments beat state's expert pension planners," which found that a simple index portfolio would have outperformed the Florida state pension plan's investment performance over the last ten years.

Florida’s portfolio finished well below our index portfolios in 2011 and continues to fall well short of our returns. For a similar amount of risk, you could have had over 3% more return annually in our Index Portfolio 65.

Seeing how Florida's pension plan fared so poorly against the index portfolios, we asked ourselves, what about the other states? Data on these pension plans show a disturbing trend. Outside of the Arkansas Teachers, no plan approaches the returns of IFA Index Portfolios, and even that plan had to take more risk to capture a return close to our IFA Index Portfolio 50. But there’s good news. These portfolios that beat the quote–unquote expert pension planners are available to anyone who invests with IFA.

For more information on Pension-Gate, see this article.



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