Tuesday was gut wrenching.
But yesterday may have been even worse.
Somehow, though, those tumbling numbers weren’t the worst thing I saw yesterday.
Early Wednesday, veteran reporter John Stossel posted a report on the Fox News website that shook me to my core.
Here’s the headline: “Politicians’ Deceitful Promise That Nobody Has Been Paying Attention To.”
And that’s led to a $6 trillion pension debt. That ticking time bomb represents a full third of the U.S. economy.
Meanwhile, Stossel explained, our politicians have nothing but platitudes. Everything is “alright,” they all say.
Pensions for hardworking Americans could be cut up to 50%. And that’s just a start.
What’s worse is that Stossel’s story is coming out when it may be too late to do anything.
This is an issue that’s been building for decades.
Institutions use so-called alternative investments to boost performance because they are trying to make up for the $6 trillion in underfunded liabilities we’ve just told you about.
Fund managers, desperate to kick the can down the road before the $6 trillion pension time bomb blows up on their watch, claim they can boost returns using exotic hedge funds, partnerships, real estate, music royalties, derivatives… you name it.
More often than not, however, this promised performance never materializes – and the fund managers lose customers.
But guaranteed pension plans can’t kick the can down the road because they have to provide a certain amount of retiree income every year. So these same funds constantly take on more and more risk via increasingly speculative investments. It’s all an attempt to make up the gap between the amount of money their funds can invest and the amount of money they have to return to retirees every year.
According to the Center for Retirement Research at Boston College, those alternative investment allocations skyrocketed from 9% of total assets in 2005, to 24% in 2015.
That’s not slowing down. A 2017 study by Coller Capital found that 23% of pension plan administrators expect to add alternative investment allocations in the next year.
Only they won’t find the high returns they crave.
That’s because it would only take one pension fund defaulting to set the chain of dominos.
This all sounds scary – because it is.
And it comes amid what’s happening in the markets.
Yesterday, the Dow closed 608 points down. On Oct. 18, it fell 266 points. Oct. 11 saw a 466-point drop, and the day before that saw an 843-point fall.
These could be just small cracks of a market on the brink of something much, much worse.
However, now is not the time to head for the exits. Like we’ve been discussing for months here, we’re in the middle of a generational bull market. What we’re seeing now is temporary.
That said, this pension time bomb will impact you.
But you don’t have to be a victim.
There are five steps you can take right now to protect yourself. In fact, they could help you come out ahead.
Click here for more information.
I’ll see you back here tomorrow.
Cheers and good investing,
Michael A. Robinson