You asked us... Investments
May 04, 2015
Check out the answers to some of the top questions you had about our investments following the release of our 2014 results.
Q: Many financial analysts are talking about a more devastating stock market collapse than in 2008. How has Teachers' prepared for this possibility/probability?
A: Teachers' has built, and continues to build, an investment portfolio that is diversified by geography and by asset class. We believe that this diversification will help us to mitigate the effects of any economic upheaval. Teachers' is a long-term investor and our returns will not be constant over time. We attempt to be flexible and disciplined as we adapt to business cycles and shifting investment environments.
Q: What is the plan to invest more in Europe and what is the thinking about Africa and other emerging markets?
A: We consider investments in all regions of the world, including Europe, Africa and emerging markets. However, we don't have targets or quotas for investments in any specific region. Our goal is to find good investments that will help pay pensions, without regard for geography.
Q: What is the impact of fluctuating oil prices and declining interest rates on the performance of the plan?
A: The decline in commodity prices had a small negative effect on the pension plan in 2014. Despite that, Teachers' had an investment rate of return of 11.8% in 2014, which was above our investment benchmark of 10.1%.
Low interest rates have a significant effect on the plan's liabilities – as interest rates decline, the cost to fund a typical pension grows. For example, it costs $900,000 to fund a $48,500 pension with interest rates at 3%. That rises to $1.2 million if interest rates drop to 1%.