I had to read this article twice—and I still couldn’t believe what I was reading. According to the Wall Street Journal, the State of Wisconsin Investment Board has approved a plan to leverage their bond portfolio to boost their state pension performance.
The strategy calls for leveraging pension funds’ safest asset—government or other high-grade bonds—while reducing exposure to stocks.
Wow. That sounds like a great idea. And I was concerned about retail investors piling into bonds at the possible bottom of the interest rate cycle.
Wilshire Consulting, which advises pension funds on investments, says leverage helps the funds meet their long-term return targets without relying too heavily on volatile stocks, or tying up their money for long stretches in private investments.
Of course no one wants to rely on volatile stock returns—so just leverage your bonds to make them more volatile! I’m pretty sure this will work out well. As the old saying goes, “If you run through the dynamite factory with a match, you might live, but you’re still an idiot.”
