Long time readers know that I am pretty bearish on the ability of investments, as a whole, to earn historical rates of return. It would be nice, of course, if they could, since with low inflation, high rates of return would mean an increase in *real* returns and the ability to fulfill the fantasy that we can all be rich. Just put a little bit aside every week or month and watch the power of compounding make you a very comfortable person.
Logically, though, this is impossible, since as "everyone" did this, competition for goods, services and assets would drive prices higher.
Alas, among the most fanciful are the most "sophisticated" investors - pension funds. Public pension funds have a major weakness, they are run by politicians and public employees, who desire attractive work conditions: easy jobs, comfortable pay, job security, and cushy benefits like attractive pensions.
Politicians like to give this constituency what it wants (see Megan McArdle on this topic) but prefer taxpayers not know what this costs. Since many of the actual costs can be shifted to the future (for a different electorate and politician set to deal with and when later pols can deny responsibility) assumptions about the future tend to be pretty rosy.
Here is Jason Zweig, one of the best financial journalists we have, writing about this topic.
Happy do discuss in more detail.
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