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Old 08-07-2013, 08:46 AM
 
9,856 posts, read 14,195,652 times
Reputation: 5461

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Quote:
Originally Posted by le roi View Post
Social security isn't intended to grow money in a private market. In fact the whole point of it is to provide a safety net for whenever the market fails an individual person.
And you provide a safety net through growing money over time...

Quote:
So don't buy shares of Lockheed Martin.

Personally, I'm not a fan of investing public money that cannot afford be lost in a high-risk/high-return investment vehicle like equities.
So you say that lockheed is the same as kidnapping people to harvest their organs? Could you be more offensive?

As I said before, long term equity investment outperforms any other vehicle over a working time period. There is no 30 year period where a 100% equity portfolio would give you a net loss, even adjusting for inflation.

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Because you asked for examples of high-return ventures, and you seem to demonstrate no understanding of the concept of risk.
I understand risk, I am just not offensive enough to compare killing people to harvest their organs to buying a share of stock in a company. Good god...

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Nobody ever said that ROI should be the primary goal for state-managed pension plans; that's what an individual's 401k's and real estate holdings are for.

State-managed pension plans should

(A) Take in money via taxes and employee contributions
(B) Invest that money, which cannot afford to be lost, in something with LOW RISK. (not something that maximizes ROI)
(C) Make less-ambitious assumptions regarding investment returns

Then, maybe they wouldn't be so underfunded.
You don't seem to be great at actually reading here. A 100% equity portfolio invested over a 30 year period has always historically outperformed private plans such as pensions. Diversifying an equity portfolio over several hundred equities reduces the portfolio's standard deviation below most fixed income investments. You can get a higher sharpe ratio with a well diversified equity portfolio than you ever could with a modern pension plan.

You DO realize that risk is mitigated when you have a diversified portfolio, don't you? I am talking about an equity PORTFOLIO, not a single stock.
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Old 08-07-2013, 09:00 AM
 
22,769 posts, read 28,125,160 times
Reputation: 14627
Quote:
Originally Posted by hnsq View Post
And you provide a safety net through growing money over time...
No you provide a safety net by having a pool of money kept in a minimal-risk environment.

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So you say that lockheed is the same as kidnapping people to harvest their organs?
No, I said that they both kill people.

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Could you be more offensive?
Yes, probably.

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As I said before, long term equity investment outperforms any other vehicle

A 100% equity portfolio invested over a 30 year period has always historically outperformed private plans such as pensions.
We've been over this. You are not including risk.

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Diversifying an equity portfolio over several hundred equities reduces the portfolio's standard deviation below most fixed income investments.
Spoken just like a salesman. Complete bullsh*t, too. Spreading your money across hundreds of equities is NOT diversification. One simply needs to look at the 2008 crisis, when equities moved downward in lockstep with one another, regardless of the firm's sector or fundamentals.

Quote:
You DO realize that risk is mitigated when you have a diversified portfolio, don't you? I am talking about an equity PORTFOLIO, not a single stock.
The risk is mitigated slightly, but not nearly enough. Thanks to the basic structure of American corporations, and their reliance on debt, equities are an inadequate hedge against debt deflation and/or credit crises.
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Old 08-07-2013, 01:21 PM
 
9,856 posts, read 14,195,652 times
Reputation: 5461
Quote:
Originally Posted by le roi View Post
No you provide a safety net by having a pool of money kept in a minimal-risk environment.
...right...and a well diversified equity portfolio is a minimal-risk environment, when looking at a 30 year time horizon.

Quote:
No, I said that they both kill people.
No, you picked one of the most offensive things you can find to try and make a ridiculous point. reductio ad absurdum is a pretty terrible way to try and make a case for yourself.

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We've been over this. You are not including risk.

Spoken just like a salesman. Complete bullsh*t, too. Spreading your money across hundreds of equities is NOT diversification. One simply needs to look at the 2008 crisis, when equities moved downward in lockstep with one another, regardless of the firm's sector or fundamentals.
It absolutely is diversification! Are you seriously saying that something like the SPY ETF isn't more diversified (and doesn't have a lower standard deviation) than a single stock? Seriously? Also, you keep ignoring the fact that an equity portfolio is diversified over a 30 year time horizon. Yes, people lost money on equities in 2008, but they were still better off than if they had been in fixed income (or worse yet, GregW's idea that I originally responded to) for the last 30 years.

Quote:
The risk is mitigated slightly, but not nearly enough. Thanks to the basic structure of American corporations, and their reliance on debt, equities are an inadequate hedge against debt deflation and/or credit crises.
This is flat out not true. What investment theory or timeframe supports any of what you are saying? Name a single 30 year period where something like a Russell 3000 fund has a negative real return. Obviously in real life you move a person more into fixed income and away from equities the older they get, but that wasn't my original point. My point is that something as simple as a diversified equity portfolio has historically outperformed the idea that was proposed by GregW.
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Old 08-07-2013, 02:06 PM
 
22,769 posts, read 28,125,160 times
Reputation: 14627
Quote:
Originally Posted by hnsq View Post
It absolutely is diversification!
We'll have to agree to disagree. I do not think 100% equities is adequate diversification for anyone, much less a state pension fund, and no I don't care what mix of equities you have in mind.

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Are you seriously saying that something like the SPY ETF isn't more diversified (and doesn't have a lower standard deviation) than a single stock?
No, I actually never said that. You just made that up.

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Seriously?
Yes you seriously made that up.

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Also, you keep ignoring the fact that an equity portfolio is diversified over a 30 year time horizon.
Which 30-year time horizon ? 1844 - 1874 ?

Or did you just pick the last 30 years, and assume that all future 30-year periods would resemble the last?

Quote:
Yes, people lost money on equities in 2008, but they were still better off than if they had been in fixed income (or worse yet, GregW's idea that I originally responded to) for the last 30 years.
Past performance is not an guarantee of future performance.

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Name a single 30 year period where something like a Russell 3000 fund has a negative real return.
The Russell 3000 hasn't even been around for 30 years. The Russell Indices as a whole were started in 1984, while the Russell 3000 was started in 1994.

Quote:
Obviously in real life you move a person more into fixed income and away from equities the older they get, but that wasn't my original point. My point is that something as simple as a diversified equity portfolio has historically outperformed the idea that was proposed by GregW.
And i made it pretty clear that we are talking about risk-adjusted return for state pension funds, who have minimal tolerance for losses.

My 401k is ~80% equities, give or take, because I'm comfortable with the level -- but my 401k isn't a pension fund, nor is it a social security safety net.
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Old 08-08-2013, 10:01 AM
 
9,856 posts, read 14,195,652 times
Reputation: 5461
Quote:
Originally Posted by le roi View Post
We'll have to agree to disagree. I do not think 100% equities is adequate diversification for anyone, much less a state pension fund, and no I don't care what mix of equities you have in mind.
I never said it was adequate. I said it would perform better than GregW's original idea.

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No, I actually never said that. You just made that up.
I didn't make it up, you claimed that a portfolio of equities is not an example of diversification.

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Which 30-year time horizon ? 1844 - 1874 ?

Or did you just pick the last 30 years, and assume that all future 30-year periods would resemble the last?
Any 30 year period since the inception of the united states. Please keep the discussion relevant. You are resorting to reductio ad absurdum again.

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Past performance is not an guarantee of future performance.
So you are saying we cannot see the future, so don't invest at all?

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The Russell 3000 hasn't even been around for 30 years. The Russell Indices as a whole were started in 1984, while the Russell 3000 was started in 1994.
That was an example of a well diversified collection of equities. You seem to have trouble understanding examples.

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And i made it pretty clear that we are talking about risk-adjusted return for state pension funds, who have minimal tolerance for losses.

My 401k is ~80% equities, give or take, because I'm comfortable with the level -- but my 401k isn't a pension fund, nor is it a social security safety net.
State pension funds shouldn't exist. They should only be in market portfolios. Personally, I want people to have more money when they retire. You don't seem to feel the same way.
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Old 08-08-2013, 10:09 AM
 
60,820 posts, read 47,341,105 times
Reputation: 37764
Quote:
Originally Posted by le roi View Post
We'll have to agree to disagree. I do not think 100% equities is adequate diversification for anyone, much less a state pension fund, and no I don't care what mix of equities you have in mind.

No, I actually never said that. You just made that up.

Yes you seriously made that up.

Which 30-year time horizon ? 1844 - 1874 ?

Or did you just pick the last 30 years, and assume that all future 30-year periods would resemble the last?

Past performance is not an guarantee of future performance.

And i made it pretty clear that we are talking about risk-adjusted return for state pension funds, who have minimal tolerance for losses.

My 401k is ~80% equities, give or take, because I'm comfortable with the level -- but my 401k isn't a pension fund, nor is it a social security safety net.
You both have some valid points.

1. State pension funds have the backing of the states taxation power etc. so I would think they'd a lot larger tolerance for losses than private pension funds.

2. Investing in "safe" investments carries with it other types of risk. A bunch of long term "safe" govt. bonds are going to wreck your pension fund if inflation spikes like in the 1970's.
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Old 08-08-2013, 11:28 AM
 
60,820 posts, read 47,341,105 times
Reputation: 37764
I think citing what actual pension fund managers have for asset allocation might help the discussion.

Milwaukee has a very well run city pension fund with >4bil in it.
55% equity, 25% fixed, real estate 10%, private eq 5%, other 5%
http://www.pionline.com/article/2013...YREG/130429944

Berkshire Hathaways pension plan is about 50/50 stocks/bonds and >10bil in assets.
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