SBA pension 'expert' investors underperform simple, index investing-and make big money
An ordinary investor who put $100 into an easy investment fund portfolio 10 years ago could have had $184 by the end of the decade — without combing through the stock listings, making lots of trades or hiring high-priced experts.
And what about somebody who put his retirement in the hands of Florida's pension fund, which employs hundreds of experts and spent hundreds of millions of taxpayer dollars making investing decisions?
That person would have realized much less from that $100 bet — $157.
That's the result of a St. Petersburg Times analysis of how effectively the State Board of Administration invests the retirement savings of state, county and city employees.
The idea was straightforward: We asked financial professionals to create portfolios of index funds that required no Wall Street wizards to oversee them. Index funds are simple investments that are content to do precisely as well as the markets do, and no better. Some are riskier than others, depending on the market they track.
We didn't set a lot of rules for our experiment. We merely asked our contributors to build funds that were inexpensive and easy for people to understand. We also looked at model index-fund portfolios developed by two Ivy League finance professors. Then we compared how all of those funds would have performed with the returns the investment gurus at the SBA actually got.
The result? The professionally managed SBA performed worse — by more than a percentage point — than seven index-fund portfolios for the decade ending Dec. 31, 2010.
On average, a $100 investment grew to $184, with results ranging from $162 to $207.