The Dow Jones Industrial Average is down another 300 points so far today, on the heels of yesterday’s 350-point drop. For Chicago firefighters, and the taxpayers supporting them, it is shaping up to be a not-so-good weekend.
In its latest annual report, the Chicago firefighters’ pension plan reported equity investments of $635 million. Equities (stocks) made up about 2/3 of the entire investment portfolio, a very heavy concentration.
Equities are riskier than bonds, especially Treasury bonds. Risk works both ways, of course, and stock prices have risen substantially over the long run.
Past success does not guarantee future performance, however, as the saying goes.
The last 48 hours have been a reminder that scary creatures can leap out at us from behind the trees, on occasion.
The Chicago firefighters’ pension plan has been sorely underfunded, and the last couple days aren’t going to help. At 23%, its funded ratio is far below what is considered to be healthy levels. Perhaps not coincidentally, and unfortunately, it has a very high allocation to equities – a riskier asset class -- in its overall portfolio.