CalPERS Projected Returns vs. Reality

Whenever CalPERS, or any government worker pension fund, suggests that a long-term projected rate of return of 7.75% is realistic and prudent, one needs to consider the following: Across every major stock index in the U.S., and on most indexes in the rest of the world, publicly traded stocks have been down for the last 12 years. Here is a chart of the Dow Jones Industrial Averages staring in January 2000, and running through last week:

What is immediately clear from viewing this chart is that where the index began, nearly 12 years ago, and where it is now, are pretty much the same. To be precise, the Dow entered the week of January 4, 2000 at 11,522, and the Dow entered the week of August 8, 2011 at 11,269 (ref. Yahoo Finance – DJIA 1-2000 to 8-2011). The Dow has actually declined over the past 10.5 years.

Moreover, this loss of equity value should be measured using inflation adjusted dollars, not nominal dollars. If you review the Consumer Price Index from the U.S. Dept. of Labor, you will see that in January 2000 the index stood at 168.8, and in June 2011 (latest figures) the index stood at 225.7. This means that it would take $1.33 today to purchase what $1.00 would have purchased in 2000. From this perspective, the Dow index today would have to stand at 15,406 just to have [...] Read More