While headlines of people losing their retirement savings shock the world, pension board executives say diversity and long-term investments help Baptist retirement plan funds weather bear markets.
People who lose their life’s savings usually have all their money in a few companies, but Baptist retirement plan investments are made in hundreds of different companies to protect members against extreme market volatility.
Plan members may not experience the highest earnings during a bull market, but they do not experience the most devastating losses in a bear market.
“It is important to remember that MMBB is not a mutual fund manager,” said Sumner M. Grant, executive director of the Ministers and Missionaries Benefit Board, the pension board for American Baptist Churches USA.
“Typically, mutual funds have a shorter time horizon and are invested in single asset classes,” Grant said. “MMBB invests in a well-diversified portfolio of stocks and bonds for the long term to build assets throughout your career which you can convert into a stable income stream at retirement.”
While ABC ministers use MMBB, most Southern Baptists ministers place their retirement funds with the Annuity Board.
“When Annuity Board retirement participants invest in one or more of AB Funds Trust’s mutual funds, they are pooling their assets with hundreds [or even thousands] of other participants to buy stocks and/or bonds of hundreds of different companies,” said Roddy Cummins, investment officer for the Southern Baptist Annuity Board.
Cummins noted that if a stock has a significant loss, the impact on an individual in an Annuity Board fund is limited, compared to those who owned only that stock.
Although no investment fund is free of risk, none of AB Funds Trust’s select equity funds has fewer than 450 different stock holdings, Cummins explained.
Grant noted that most of the MMBB plan members invest in a Balanced Fund, a mixture of stocks and long-term holdings. “Since 1970, the Balanced Fund has returned an annualized 9.3 percent. Year to date the fund is -14.6 percent in comparison to the Wilshire 5000, which is -25.2 percent,” he said.
“The [MMBB] Annuity Fund holds the assets out of which payments are made to retired members. It has a heavier weighting in bonds, due to the Finance Committee’s decision to place a portion of its assets in a stable value product” Grant said. “Year to date the Annuity Fund is -7.1 percent, and only -3.2 percent since September 30, 2001, the date the annuity payout is struck for the ensuing year,” said Grant.
Both Baptist pension boards employ a “manager of managers” strategy for investing member monies.
Annuity Board officials set criteria and hire more than 25 investment firms based on their requirements, including investment performance and style. Staff members monitor each firm to assure that investments reach pre-determined goals. Multiple investment firms manage each fund to offset under-performance of a single firm.
Grant said the MMBB has a finance committee of investment professionals that meets monthly to review market conditions and adjust asset allocations.
While many plan members are experiencing “market jitters,” Cummins said that poor market returns would not last forever and that those who remain patient would benefit when the market bounces back.
He urged Baptist retirement plan members to consider the big picture because history is on the side of those who remain invested in the stock market.
“The market has repeatedly shown the resiliency to rebound from a crisis and eventually soar to new heights,” Cummins said. “One year after the Cuban Missile Crisis the market was up 31.41 percent; and after the World Trade Center bombing in 1993 the market was up 13.68 percent.”
“Stay invested. You don’t want to be on the sidelines during a market turnaround. Just as in sports, you won’t benefit from a rally if you’re not in the game,” said Cummins.
He suggested that bull markets are the best time for members to review their time to retirement, assess their risk tolerance and look at the diversity of their investments.
People who have many years to retirement can ride out the volatility of stocks and be more aggressive with their investments, while those with a short-term horizon may want to consider a more conservative approach that includes bonds.
“Market slumps can be a wake-up call to many investors to lower their risk exposure,” Cummins said. “You don’t want a portfolio with a risk level so worrisome you lose sleep over it. Determine in advance what your comfort zone would be if the stock market dropped.”
And use a bull market to reassess the diversity of your portfolio, Cummins urged. “If you made the mistake of putting all your eggs in one basket, avoid doing that again.” He said that members lower their risks by choosing a variety of investments.
“Look on the bright side. Lower share value means more shares purchased. When you invest a fixed amount of money at regular intervals, you can buy more shares in a bear market when share prices are declining than you can buy in a bull market when share prices are climbing,” Cummins said.
Ray Furris a freelance writer and operates his own communications/marketing business in Poquoson, Va.