Guaranteed 7.5%

Let’s run the math. Some state pensions guarantee 7.5%. If they don’t make the return, then it’s up to taxpayers to make up the difference. For perspective, the five-year Treasury yields 0.71%. You have to go back to the early 90s to find the last time the five-year Treasury yielded 7.5%.

In order to meet the 7.5% guarantee, state treasurers are taking on more risk, including investing in hedge funds, but returns have yet to materialize. Through Tuesday, August 22, The Wall Street Journal reports that measures of hedge fund performance are not off to a great start to the year. The All Hedge Index is up 3.2%, the Convertible Arbitrage up 5.2%, the Dedicated Short Bias down 10.08%, the Emerging Markets up 2.22%, the Equity Market Neutral up 2.55%, and the Event Driven up 0.96%.

Politicians were all too willing to increase the guaranteed rates of return in the good times. Now they’re slow to reduce them. It’s easier for politicians to hope for higher returns and kick the can down the road to get re-elected. But hope is not a strategy.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.