UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

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cal149
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Joined: Mon Oct 15, 2018 4:00 pm

UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

Post by cal149 » Mon Oct 15, 2018 4:18 pm

Is an 18.1% annual return on the UC DCP not incredibly high, i.e. outside reasonable historical bounds?

samsdad
Posts: 145
Joined: Sat Jan 02, 2016 6:20 pm

Re: UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

Post by samsdad » Tue Oct 16, 2018 12:21 pm

What are the underlying investments? Any chance that a UC alum can get in on this deal? For 18.1% annual return, I’d be real hesitant to think that that could possibly be true—unless the taxpayers of California are being fleeced, but I don’t think that’d ever happen.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

Post by MotoTrojan » Tue Oct 16, 2018 12:26 pm

cal149 wrote:
Mon Oct 15, 2018 4:18 pm
Is an 18.1% annual return on the UC DCP not incredibly high, i.e. outside reasonable historical bounds?
Yikes. I've seen some pensions using a 7% real expected return and cringed a bit. This would certainly be bat$#@% crazy.

ofckrupke
Posts: 545
Joined: Mon Jan 10, 2011 2:26 pm

Re: UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

Post by ofckrupke » Tue Oct 16, 2018 12:51 pm

cal149 wrote:
Mon Oct 15, 2018 4:18 pm
Is an 18.1% annual return on the UC DCP not incredibly high, i.e. outside reasonable historical bounds?
Consider the following: for calendar year 2017,
the Russell 3000 index (broad US market) return was 21.13%.
the MSCI AWCI ex-US (all-world ex-US) return was 27.04%.
the Bloomberg Barclays US Aggregate bond index (US total bond market, more or less) returned 3.54%.

So a stock sleeve of 2/3 US + 1/3 ex-US indices should have returned approximately 23.1%

And a fund/portfolio composed of this same stock index sleeve at 75% and US bond index at 25% should have returned something like 18.2% for year 2017. [The simple arithmetic approach neglects small effects due to rebalancing inside the fund arising from the three indices advancing at different rates at different times of the year.]

So I would say: plainly inside historical bounds for a one-year return...but at the same time, very high relative to long term average annual return for such a portfolio, both historically and expected from the future. Suggests the relative insignificance of single year return for a decades-long haul.
Last edited by ofckrupke on Tue Oct 16, 2018 12:55 pm, edited 1 time in total.

staythecourse
Posts: 6131
Joined: Mon Jan 03, 2011 9:40 am

Re: UC DCO's too high return? [Univ. of CA Defined Contribution Plan]

Post by staythecourse » Tue Oct 16, 2018 12:55 pm

samsdad wrote:
Tue Oct 16, 2018 12:21 pm
What are the underlying investments?
That is the correct answer as it is the same as every post on the thread of "What are returns YTD". A simple equation of returns is basically: Asset allocation +/- alpha- fees- taxes. That simple or not simple as it may be to figure out.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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