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Third Quarter Assets Decline—A Snapshot in Time

December 29, 2011

Driven largely by the decreases in corporate stocks and interna­tional securities, the U.S. Census reports that the value of investments held by 100 of the largest U.S. public-employee retirement systems fell in the third quarter of 2011. Total holdings and investments quarter-to-quarter decreased $236.6 billion, or 8.5 percent, to $2.5 trillion.

This news is no surprise to anyone who has even half-listened to the daily, or weekly, gyrations of the stock market. However, performance in one quarter—especially following a trend of increases for five consecutive quarters—is not as worrisome as some may think.

As the posts on this blog often repeat, pensions are about long-term investing. Felix Salmon articulately captures this importance in “The social benefit of pension funds.” It’s worth reading in its entirety, but here is one excerpt about why pensions can withstand market volatility:

They don’t suffer from the kind of maturity mismatch that’s endemic to most of the rest of the financial world. I can invest my pension-plan money with a 20-year time horizon, because I’m not going to be retired for another 20 years. (And even once I’m retired, I’m not just going to liquidate everything and go to cash.) By contrast, the people putting money in a savings account until Christmas literally measure their time horizon in months.

Another way to view a retirement plan’s level of assets at any one moment in time is akin to viewing a single frame of a stop motion animation.

To create stop motion film, an object (or objects) is photographed, moved slightly and photographed, moved slightly and photographed, etc. When the single images are put together, the objects are seen in fluid motion.  In other words, it takes combining the single frames to tell the full story or convey a message.

Here’s a highly creative example of a day calendar by Dutch visual artist Rogier Wieland for Moleskine.

Public retirement plans are made up of numerous stop motion moments — from daily market fluctuations to quarterly Census reports to changing policies — and any one single event does not convey the fluid momentum of a plan. The full story spans decades and can only accurately be told that way.

Read more:

U.S. Census data

Census Bureau: 100 largest public pension plans see first asset declines in 5 quarters

Stock losses hit public pensions: U.S. Census

Survey of Largest Public Pensions Released

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