Pension Funds made their first appearance in history in 1883 in Germany. From there they began appearing throughout Europe and eventually made their appearance in North America in the early 1920s. Earlier pension funds were private endeavors of individual companies wanting to offer employees an added incentive for loyal service. They were loosely organized and there were no guarantees of long term success. It was about the same time that they made their way into North America that they began taking shape as the formal pension or retirement programs that we see today. Although many still have no guarantee of success, most are smartly managed in order to determine that they are indeed successful. Pension fund allocation is the key to determining the success of the fund and has been throughout history.
Even though some pension funds are guaranteed by a government entity, usually there is no underlying guarantee that a pension fund will not fail completely. It is smart pension fund allocation that will ultimately make it successful. The hope for pension fund allocation is that it will make enough to guarantee a sufficient payout at retirement to maintain a certain standard of living. This is achieved by diversifying the funding into different types of investments ranging from government-based, secure investments with a guaranteed payout over a period of time to more risky investments into stocks with no guarantees but potentially large rewards for taking such risks. Pension fund allocation is generally determined by some of the best minds in finance and business in order to assure their long term success.
These pension fund allocation managers are not salespeople that you often see associated with some mutual funds. Rather they are employed by the pension fund because of their highly educated minds, many holding doctorates. They have studied the history of investments and understand the balance that must be achieved. A balance that is akin to the old adage, “Don’t put all of your eggs in one basket“. These pension fund allocation professionals achieve the goal of delivering the greatest return on the investments by carefully assessing the risk versus the reward of each “basket“. Will this basket carry the eggs in contains to perhaps hatch into little chicks which will grow up and produce more eggs, although a few will be broken and lost along they way? Or perhaps it is a basket that will simply insure that the eggs it contains are safely guarded and kept intact until they are needed. The smart allocation of pension funds is that the eggs are carefully balanced among the extremes thereby insuring a healthy number of eggs to keep one well fed during retirement years.