According to the article, PSERS maintains a goal of 7.5% average return for the $49 billion dollar pension system. However, over the past five years, the pension fund has produced 1.34% less on average than the goal. But, it’s important to note that PSERS return exceeded the Global Market Index (the unmanaged world market capitalization) by .77% despite the doom and gloom portrayed in the article. Investment managers can find it to be challenging to outperform what the market produces (GMI). Hence the old adage that you can’t get blood from a turnip. So, what’s a pension system to do during periods of lower than expected returns? Control costs. High investment manager fees can easily account for the underperformance. Maybe that is why PSERS and other pension systems are moving to index funds.
What’s the lesson here for you? Think seriously about using index funds for your 403(b) while you are working and for your lump-sum rollover when you retire. The added return by reducing costs could be the difference in you keeping up with inflation in the future. Addis & Hill uses index funds for PSERS rollover accounts that we manage. Let us show you how you can save fees by using index funds!