12/31/2007: The Case for Stock in Pension Funds (PDF) (American Academy of Actuaries)
6 pages. Excerpt: "The primary goal of this article is to show that stock investments are justified when the cash flows contain economic risk. Moreover, the appropriate discount rate is the expected rate of return of a cash-flow-matching portfolio rather than the risk-free rate. In fact, if the cash flows have economic risk that can be hedged in the market, investing 100 percent of the portfolio in bonds actually increases risk and discounting at the risk-free rate inaccurately represents the liability. These ideas are supported by the principles of financial economics and, in fact, clarify some of the myths about financial economics."
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