LACERS Reviewing Its Asset Allocations


Michael Wilkinson, LACERS/Legal Representative

By Michael R. Wilkinson, LACERS Commissioner

As a long-term investor, LACERS invests the assets of the portfolio to pay the long-term benefits earned and owed to its active and Retiree members and beneficiaries.

To reach its investment goals, LACERS takes a strategic approach to asset allocation. That means that the Board chooses an optimized mix of stocks, bonds, real estate and private equity to earn the attractive long-term risk-adjusted investment returns necessary to fund the plan.

Why doesn’t LACERS just pick a few great investments and put all our money there? Unfortunately, there is no all-weather investment that is good all the time. In some years, U.S. stocks perform spectacularly while international stocks sink, while in other years the reverse happens.

In some years, the returns favor stocks in emerging markets (small countries), while in other years stocks in developed markets (large countries) will outperform. In other years bonds will do better than stocks. There is no reliable predictor of market behavior.

So why can’t we just figure out the trends and move our investments from one investment class to another and invest only in the winners while we just sell the losers before they go down? This is the concept of market timing. Timing the market sounds great in theory, but the reality is that market forces are unpredictable and punish investors who think they can see the future.

Legendary investors such as John Bogle of Vanguard and Warren Buffet have shown that market timing does not work over the long term.

What does work is creating a diversified mix of uncorrelated investments. That means that all of the investments do not go up or down at the same time. This use of diversified investments provides the best opportunity for solid long-term gains without putting “all our eggs in one basket.”

The LACERS Board is now considering the input of our investment consultant and investment staff to consider various alternatives to the investment mix. This will provide the Board an opportunity to make any changes designed to better achieve returns needed to fund our retirement and health benefits without taking an unreasonable amount of risk.