Defined-benefit plan sponsors typically select an asset allocation by undertaking a mean/variance analysis of the probability distributions of future rates of return. Unfortunately, next year's return on plan assets often has a minor impact on future sponsor contributions, hence a minor impact on the sponsor's future wealth. A sponsor can meaningfully evaluate the true risks and rewards of an investment strategy only by focusing on what they imply about the sponsor's future contributions. Actual plan sponsor data illustrate how a sponsor can select an asset allocation on the basis of future contributions and how misleading a mean/variance analysis of returns can be.
Read the Complete Article in Financial Analysts Journal
Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
8 pages doi.org/10.2469/faj.v50.n3.34ISSN/ISBN: 0015-198X
We're using cookies, but you can turn them off in Privacy Settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy.
Privacy Settings
Functional cookies, which are necessary for basic site functionality like keeping you logged in, are always enabled.