CalPERS assumes that, in the long-term, it will earn investment returns averaging 7.5% a year.
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Way too high for this Obama economy.
Way too high for almost any economy. 30-year treasuries have not yielded 7% in over 20 years. Big funds like these also face 2 reasonable restrictions: They have to remain diversified, and they have to limit risk. That means they will face diminishing returns the larger they get, and could not truly outperform over time. They would need to either lock in high returns by buying T-Bills when they are above 7.5%, or the economy would have to be growing at a similar clip including of course stocks. But its not a reasonable expectation to plan on 7.5% “average” over long periods of time because we have a Federal Reserve that seeks as part of its primary mission to keep inflation in check by manipulating interest rates. If rates are above 7.5% that means the economy is really humming along at an inflation rate over 5%, but jacking rates itself is a measure taken to slow the economy, to slow inflation. So Calpers expectations essentially runs counter to monetary policy.
Indeed Low-return environment for seven years they need to look at other options stocks seem almost flat for that time.