Monday, June 22, 2009

Fixed-Return Fund Is Safest Bet at TRS

March 20, 2009

The Trustees of the Teachers' Retirement System of the City of New York recently published its investment returns for the Tax-Deferred Annuity Plan. The figures are for the 1-, 3-, 5-, 10-, 15- and 20-year periods ending on Dec. 31, 2008. The chart and TRS commentary can be found at: News.pdf

In order to prove their assertion that one should not invest in the equities market for the short-term, the TRS trustees zero in on the 15-year period Jan. 1, 1994 through Dec. 31, 2008. During this period, there was much short-term volatility (ups and downs) in the stock market. As a result of this volatility, the Diversified Equity Fund (formerly Variable A) was the clear loser, with an accumulation of $20,675, compared to the Stable-Value Fund with an accumulation of $25,554 and the Fixed-Return Fund with a stunning value of $34,472 (named "Fixed" because the State Legislature fixes the guaranteed rate of return).

Most observers would say that 15 years is a long term but the Diversified Equity Fund still came in last, so let's go to the longest reporting period, 20 years. One would think that the Trustees' comment: "Historically, however, equity investments have performed well over the long term" would be borne out by the 20-year performance of their Diversified Equity Fund. Their own data, however, proves their assertion wrong. For the 20-year period Jan. 1, 1989 through Dec. 31, 2008, the Diversified Equity Fund (formerly Variable A) was, again, the clear loser, with an accumulation of $40,685 compared with the Stable-Value Fund at $40,698, and the Fixed-Return Fund with a whopping accumulation of $58,585.

More at The Chief:


Michael Fiorillo said...

I don't mean to be an alarmist, but - as a teacher with 100% of my TDA in the fixed fund - what insurance or protection does our principal in that fund have? After all, it's not an FDIC-insured savings account or CD. And in today's environment of deflating financial assets, where on earth are the fund managers getting a 7% , let alone an 8.25% return?

My concern is that they are fundamentally Ponzi set-ups, with the returns based on the predictable inflow of dollars, with withdrawals penalized and difficult to execute.

Does anyone out there in TV land know:

- what insurance , if any, covers the fund (AIG anyone?)?

- what financial vehicles the fund invests in to get what in these times look like a suspiciously high return?

Just asking.

Anonymous said...

The only answer I can come up with is the fact that the interests rates are backed by the good faith and word (in writing) of the New York State Legislature...for whatever THAT'S worth.