Not a Good Combination

I’ve been discussing during my conference presentations the need for American pension systems to take some risk off the table, especially given the fact that we have enjoyed 10+ years of a bull market for US equities. I wish that my crystal ball was better than everyone else’s, but it isn’t! Given that I have no idea when the next bear market will begin, I look for opportunities to reduce risk where and when I can. This bull market has been longer than any previous one and only falls behind the great run of the ’90s when discussing gains. Why let your exposure to equities continue to grow as if this were some game of chance in Las Vegas or Atlantic City?

As a result of this nearly unprecedented move, many pension plans have enjoyed improved funded status. Do we really want to jeopardize those improvements? Can Pension America truly survive another major market decline that causes funded ratios to plummet and contribution expenses escalate to perhaps unsustainable levels? I don’t think so, at least not based on the number of plans that were forced to take corrective action following the last two such cycles.

Today’s market action, supposedly related to the Coronavirus and its potential impact on global growth, may prove to be nothing more than a blip on the radar, but it may not. Who knows? But, I do know that the combination of falling stock prices combined with falling interest rates negatively impacts a plan’s funded status and ultimately its level of contributions. Are we going to wait until well after the fact to de-risk or do we take a more proactive (dynamic) approach to asset allocation and pension management that has us managing near-term pension liabilities so that the remaining growth assets now have the luxury of time to work through any potential corrections in this equity bull market run?

I once asked an audience at an IFEBP conference if they recall what they were thinking in the Fall of 2006 and the Spring of 2007 regarding their plan’s asset allocation and risk profile. Were they concerned about the next leg in the market cycle? If so, did they do anything about it?  Well, we may be approaching the next cycle in this market environment.  What are you thinking about right now? I would encourage you not to become complacent. Call us, as we have a roadmap that would be specific to your plan’s liabilities and risk profile.


One thought on “Not a Good Combination

  1. Yep, Russ, the two common emotions associated with market sentiment, as I’m sure you’ve heard, are greed and fear. You are not alone in wishing you had a crystal ball. I’d say it’s “probably” a good time to take some risk off the table, but who “knows”?

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