5 ms·

You are making the fundamental mistake of basing the discount rate on the assets used to fund the liability, but the correct discount rate is that of the liabil

You are making the fundamental mistake of basing the discount rate on the assets used to fund the liability, but the correct discount rate is that of the liability. That rate is the risk free rate. To make the intuition clear: if you were to go to the market and purchase an asset whose cash flows exactly match those of a riskless DB pension, what return would you expect on that outlay? Stock market returns? Of course not, that would represent a clear and huge arbitrage opportunity. The rate of return would be the risk-free rate for that horizon. 30 year treasury bonds earn ~3.1% today.

tosseraccount 11y ago
There is no "fundamental mistake". This is the historical average returns for assets classes. It's very imprudent to ride "risk free" for a lifetime. 50% stocks and 50% bonds is a very safe base over time. You should take some risk.
- bobcostas55 11y ago
  >You must take some risk. DB pensions have no risk at all, tell it to them.
  - tosseraccount 11y ago
    Well, based on this : https://institutional.vanguard.com/iam/pdf/ICRSDB.pdf https://institutional.vanguard.com/iam/pdf/ICRSDB.pdf ( Survey of Defined Benefit Plan Sponsors, 2012) DB plans are about 50% equities ( domestic + international).
  - hga 11y ago
    That would be news to the Pension Benefit Guaranty Corporation (https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo...), which I'll note was set up in 1974. Yeah, it's for private plans, but no one who's been following current affairs is surprised by what's been happening with government pensions, if you study much economic history you'll know municipalities went bankrupt during the Great Depression, and that the Federal government massive devalued the dollar in the early '30s when it seized all of our gold.
    - tosseraccount 11y ago
      Actually, Plutonium deliverable on short notice is the base for U.S. currency; not gold stored in vault. A government’s ability to back its currency is the basis of currency value; not hoarding metal bars. Churchill considered his return to the gold standard the greatest mistake of his life. https://en.wikipedia.org/wiki/Winston_Churchill https://en.wikipedia.org/wiki/Winston_Churchill
      - hga 11y ago
        Perhaps; I'm not sure we have the will to enforce that, and I'm sure we don't against other nuclear powers. But it's true that there's a correlation between relevant military power and currencies, Switzerland is an example. But I'm talking about FDR's Executive Order 6102 (https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102), which seized the nation's private gold bullion stores at $20.67/oz, and then repriced it for international transactions at $35/oz. Per Wikipedia and the current BLS inflation statistics, that was $51.40 billion in 2015 dollars confiscated from the American people. National level politicians are already starting to talk about helping themselves to private retirement money; my major point is that there's no guarantees in this domain (once you go beyond your family).
        tosseraccount 11y ago
        I obviously touched a raw nerve among the gold bugs. Sorry; but some people think gold is just a metal. Why not back a currency with tin or lead? I know! Cattle would be the best commodity. No? How about gasoline? According to this ... http://www.nma.org/pdf/gold/his_gold_prices.pdf http://www.nma.org/pdf/gold/his_gold_prices.pdf Gold was not $35, it was $26 ounce at the time. After a recent run up no less. Where did you get your info, some Rand Paul/Zero Hedge site? FDR did this to expand the money supply. The U.S. was suffering from deflation. Do any countries actually back their currency with gold? Any modern country ? Not "stores a bunch" but actively exchanges currency for gold on a consumer level?
        11y ago

tosseraccount 11y ago

There is no "fundamental mistake". This is the historical average returns for assets classes. It's very imprudent to ride "risk free" for a lifetime. 50% stocks and 50% bonds is a very safe base over time. You should take some risk.

bobcostas55 11y ago
>You must take some risk. DB pensions have no risk at all, tell it to them.
- tosseraccount 11y ago
  Well, based on this : https://institutional.vanguard.com/iam/pdf/ICRSDB.pdf https://institutional.vanguard.com/iam/pdf/ICRSDB.pdf ( Survey of Defined Benefit Plan Sponsors, 2012) DB plans are about 50% equities ( domestic + international).
- hga 11y ago
  That would be news to the Pension Benefit Guaranty Corporation (https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation https://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corpo...), which I'll note was set up in 1974. Yeah, it's for private plans, but no one who's been following current affairs is surprised by what's been happening with government pensions, if you study much economic history you'll know municipalities went bankrupt during the Great Depression, and that the Federal government massive devalued the dollar in the early '30s when it seized all of our gold.
  - tosseraccount 11y ago
    Actually, Plutonium deliverable on short notice is the base for U.S. currency; not gold stored in vault. A government’s ability to back its currency is the basis of currency value; not hoarding metal bars. Churchill considered his return to the gold standard the greatest mistake of his life. https://en.wikipedia.org/wiki/Winston_Churchill https://en.wikipedia.org/wiki/Winston_Churchill
    - hga 11y ago
      Perhaps; I'm not sure we have the will to enforce that, and I'm sure we don't against other nuclear powers. But it's true that there's a correlation between relevant military power and currencies, Switzerland is an example. But I'm talking about FDR's Executive Order 6102 (https://en.wikipedia.org/wiki/Executive_Order_6102 https://en.wikipedia.org/wiki/Executive_Order_6102), which seized the nation's private gold bullion stores at $20.67/oz, and then repriced it for international transactions at $35/oz. Per Wikipedia and the current BLS inflation statistics, that was $51.40 billion in 2015 dollars confiscated from the American people. National level politicians are already starting to talk about helping themselves to private retirement money; my major point is that there's no guarantees in this domain (once you go beyond your family).
      - tosseraccount 11y ago
        I obviously touched a raw nerve among the gold bugs. Sorry; but some people think gold is just a metal. Why not back a currency with tin or lead? I know! Cattle would be the best commodity. No? How about gasoline? According to this ... http://www.nma.org/pdf/gold/his_gold_prices.pdf http://www.nma.org/pdf/gold/his_gold_prices.pdf Gold was not $35, it was $26 ounce at the time. After a recent run up no less. Where did you get your info, some Rand Paul/Zero Hedge site? FDR did this to expand the money supply. The U.S. was suffering from deflation. Do any countries actually back their currency with gold? Any modern country ? Not "stores a bunch" but actively exchanges currency for gold on a consumer level?
        11y ago