Yikes! How to think about risk?

Munnell, Alicia Haydock, Steven A. Sass, and Mauricio Soto. “Yikes! How to think about risk?”. Issue in Brief 27, Chestnut Hill, Mass.: Center for Retirement Research at Boston College, January 2005. http://hdl.handle.net/2345/bc-ir:104469.
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Abstract

The same issue keeps reappearing. How to deal with the risk associated with equity investments when evaluating the financial health of retirement systems? Some experts argue that retirement plans holding equities can make smaller funding contributions than those invested primarily in bonds. After all, stocks yield 7 percent, after inflation, and bonds only 3 percent. Nonsense, say others. The higher expected returns on equities reflect their greater risk. Any serious financial evaluation of retirement arrangements must "risk-adjust" these returns. After accounting for risk, the contribution needed today to fund future pension obligations is the same regardless of whether the fund is invested in equities or bonds...

Title
Yikes! How to think about risk?
Author
Munnell, Alicia Haydock
Sass, Steven A.
Soto, Mauricio
School
Carroll School of Management
Discipline
Finance
Center
Center for Retirement Research
Genre
report
Date Issued
January 2005
Publisher
Center for Retirement Research at Boston College
Series Title
Issue in Brief
Series Number
27
Version Identification
Version of record.
Persistent Link
http://hdl.handle.net/2345/bc-ir:104469
Use Restrictions
These materials are made available for use in research, teaching and private study, pursuant to U.S. Copyright Law. The user must assume full responsibility for any use of the materials, including but not limited to, infringement of copyright and publication rights of reproduced materials. Any materials used for academic research or otherwise should be fully credited with the source. The publisher or original authors may retain copyright to the materials.
Subject
Social Security

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