Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Staying the Course: PERA’s Approach to Market Volatility

A woman pointing to a financial chart on a computer screen
Photo credit: GaudiLab/Getty Images

The year has gotten off to a rocky start in the stock market, as concerns about the economy, inflation, and the Russia-Ukraine conflict have led to a series of ups and downs in the major stock indexes.

PERA’s investment staff, led by Chief Investment Officer Amy C. McGarrity, manages a portfolio of more than $60 billion (as of Sept. 30, 2021) on behalf of PERA members and retirees. While staff monitor market activity and trends, PERA’s investment focus is on the long-term.

McGarrity recently participated in a discussion with other CIOs at the Council of Institutional Investors’ spring conference, where she and the other panelists spoke about the challenges of investing in today’s market environment and the importance of a strategic, diversified portfolio.

“We are in the business of providing retirement security, so we invest strategically,” McGarrity said. “We don’t try to predict what the markets will do from day-to-day, but instead we remain invested in our primary asset classes throughout the market cycle, with a focus on long-term returns.”

Strategic asset allocation

Pie chart showing PERA's preliminary, unaudited asset allocation as of Sept. 30, 2021: 58.8% global equity, 19.5% fixed income, 8.7% private equity, 7.8% real estate, 4.7% alternatives, 0.5% cash
PERA’s preliminary, unaudited asset allocation as of Sept. 30, 2021 (click to enlarge)

The PERA Board of Trustees sets PERA’s strategic asset allocation, which dictates how the fund’s portfolio should be split between various types of investments like stocks, bonds, and real estate. Those investments carry different levels of risk (potential for loss in value) and potential return (gain in value). For example, stocks can generate strong returns but often come with a higher level of risk, while bonds typically generate lower returns but also have a lower level of risk.

The result is a diverse mix of investments with varying levels of risk that can help protect the overall portfolio during times of market volatility.

While the stock market may go up or down in a given year, PERA’s strategic asset allocation was developed with the goal of ensuring PERA’s investments will generate value over the course of several decades, regardless of what happens in any one year.

Focusing on the long-term

Being invested for the long-term means being exposed to the ups and downs of market cycles. Downturns are expected, and the swiftness with which they can occur often overshadows the rise in markets, even though positive market environments typically outweigh the negative impact of historical downturns.

For example, in early 2020, global equity markets saw steep losses as COVID-19 spread around the world. By the end of the year, the markets had rebounded and even posted gains.

PERA’s assumed rate of return — one of the key numbers PERA uses to forecast how much money the fund will have on hand to pay benefits in the future — is 7.25 percent. While the actual return in a given year may be higher or lower than 7.25 percent, the goal is to meet the assumed rate of return over a period of 30 or more years. PERA’s annualized return over the past 10 years is 9.4 percent. By maintaining a well-diversified portfolio of assets and a focus on long-term returns, PERA is well-positioned to weather ups and downs in the markets and continue providing lifelong monthly benefits to current and future retirees.

VolatilityVolatility of returns is the measurement used to define risk. It describes the variation of price of a financial instrument over time. The greater the volatility, the higher the risk.

Comments

  1. Kathleen S Pickard says:

    Is PERA of Colorado involved with the Russian Stock Market?

    • PERA On The Issues says:

      On February 24, Governor Polis made a request to the PERA Board that is consistent with what has been included in the federal mandates pertaining to sanctions on Russian-owned assets. U.S. sanctions remain fluid and include a combination of freezing assets, divesting of assets and not investing additional funds in Russian assets. PERA is reviewing and preparing to implement the federal mandates within the required time specifications. As of February 24, PERA has $8 million in total invested in Sberbank, OGK-2, Gazprom, Mosenergo, and Rosneft Oil.

    • Naser M Abu-Hejleh says:

      Please answer the question listed before

  2. Dennis Lima says:

    Yes thanks PERA. Stay the course is great advice for long term investors. Mr. Market has his fits every so often, but successful long term investors know to ignore the panicky types.

  3. Andrew Burns says:

    Volatility equals Opportunities, and stomach aches!

  4. Charlotte Burchell says:

    Does PERA have a money market I can invest in?

  5. Raymond Salinas says:

    Diversification is the best way to reduce risk and with over 58% in Global Equity how diverse is the equity portfolio? With political/economic uncertainty in other countries, the risk is higher if only a small portion is in domestic equities. U.S. economy is strong invest in USA!

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