What effect do a tsunami in Japan, uprisings in the Middle East and riots in Athens have on your pension?
May 15, 2012
Last year proved to be the costliest in history, according to the United Nations. Earthquakes in Japan and New Zealand, a Japanese tsunami, Thai floods, political upheaval and unrest in the Middle East, and history's largest sovereign default in Greece drove global economic losses to as much as $380 billion.
"The global economy is more interconnected today than any other time in history," says Neil Petroff, Executive Vice-President, Investments. "For example, the economic aftershocks of Japan's tsunami were felt in auto plants in Canada."
Learn more about how Teachers' investment team navigates through uncertain times.
Ongoing economic uncertainty and continuing low interest rates mean the plan must project more modest investment returns. For example, the 10-year current outlook for the gross domestic product is 2.05%, compared to 3.1% at the plan's creation, making it harder to drive large returns. Additionally, interest rates are at the lowest level since the 1950s and 1960s, so plan managers need to set aside more money to pay pensions. In 2011, real return bond yields were 0.45% versus 4.5% in 1990.
"We know that there are systemic issues which we cannot control; however, the investment team is working very hard on the things we can control to optimize their portfolios," says Neil. "We have the right investment management team with our 'secret sauce' of collaboration, innovation, good judgment and courage to help us navigate through uncertain times."