An investigative journalist for St. Petersburg Times, approached Index Fund Advisors (IFA) 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,”76 which concluded that a simple index portfolio would have outperformed the Florida state pension plan’s investment performance over the last ten years. “The professionally managed SBA [State Board of Administration] performed worse — by more than a percentage point — than seven index-fund portfolios for the decade ending Dec. 31, 2010,” the article reports. “On average, a $100 investment in an index portfolio grew to $184, while Florida’s pension delivered just $157,” the reporter concluded. The findings prompted further query for IFA. If Florida’s $124 billion pension plan fared so poorly against the index portfolios, what about the other states? IFA has attempted to analyze the employee retirement systems in all 50 states. Data on more than 40 state pension plans have been received to date, yielding similar results with varying degrees of underperformance relative to the index portfolios. Figures 5-7 through 5-10 show the annual risk and return of various state pension plans, net of fees, compared to passively managed index portfolios comprised of a blend of diversified asset allocations. A best effort was made to estimate fees in states that report returns before fees are deducted. States were analyzed for both 13-year periods and 26-year periods and were
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...