General Treasurer Seth Magaziner today provided a market update to discuss the impact of August's sharp stock market decline on the investments of everyday Rhode Islanders and the state's pension system.
"Financial markets can be volatile and uncertain," Magaziner said during a five-minute video whiteboard presentation: ri.treasury.gov. "We can't control what happens in China and on Wall Street. But by planning for the long term and avoiding risk, Rhode Island can weather the storm and meet our financial objectives."
Magaziner's video whiteboard presentation is the first in an occasional series that his office will produce to help Rhode Islanders – including the more than 60,000 members of the state pension system – better understand market trends and retirement system's goals and investment strategy.
August's 6.8 percent stock market decline was the steepest in more than four years. The sell-off began in China and spread to the United States and Europe, driven by factors that included China's currency devaluation, falling commodities prices and concerns over possible rate hikes in the U.S, Magaziner said.
While analysts say the downturn appears to be a market correction rather than a crash like the one that occurred in 2008 and 2009, the recent market volatility has likely had an impact on most investment portfolios, Magaziner said. He advised Rhode Islanders against making investment decisions based on the daily ups and downs of the market.
"The safest way to save for the future is to have a long-term plan and stick with it," he said.
Discussing the recent market volatility's impact on Rhode Island's pension system, Magaziner said the pension fund's investment strategy is designed to protect against market risk through diversification. The strategy worked as planned in August; while the S&P 500 ended the month down 6.8 percent, the pension fund experienced only a 3.3 percent decline.
"Diversification and careful risk management saved more than a quarter billion dollars in August," Magaziner said. "Even after August, Rhode Island's pension system has averaged better than an 8 percent return over the past five years."
Learn more about the state's pension investments at the Rhode Island Treasury website's new Investment Information Center: investments.treasury.ri.gov