dsmWealth: January 20, 2022

How IPERS Invests Its $43 Billion

BY STEVE DINNEN

A well-diversified portfolio is a work of art – a bold stroke of international equity here, a splash of fixed income there to make a canvas whose performance satisfies the eye of all who gaze upon it.

It’s quite a lot to pull off, though, and all the larger a task when $43 billion is at stake. But that’s the job given Gregory Samorajski (pictured), the CEO since mid-2020 of the Iowa Public Employee Retirement System.

IPERS has 170,000 government workers currently contributing to it, and 126,000 retirees depending on it to nurture all that money in a manner to fund their jubilee years. IPERS just finished a strong fiscal year, up 29.6%.

IPERS divvies up its money among nine assets classes, such as domestic equity (the largest portion, at 22% of the total portfolio), international equity (17.5%), all the way down to cash, at 1%. So this takes in stocks and bonds that we’re all familiar with. Further diversification comes with private equity, private real assets and private credit. In these areas, IPERS will place money with a smidgen of timber leases, a dab of venture capital, and some hard assets such as real estate (yes, it owns buildings), among others. At year end, there were 400-plus active investments within the private equity portfolio that an outside investment management firm had committed to on behalf of IPERS.

“We try to be in as many things as we can that we understand,” Samorajski said.

Iowa understands farms, so a pension plan that serves its government workers might be expected to include some working farms. That’s not as easy as it may seem. The asking price for some of these properties is just too high to merit a purchase.

IPERS has committed $150 million to UBS Farmland Investors. The market value of the investments made as of 3Q21 was $65 million. This $85 million gap is called dry powder – money committed but unspent.

“Farmland is one area where it has been difficult to acquire properties, given the current pricing,” Samorajski said. In fact, he said the search for real assets is fairly difficult.

Individual investors may find this to be the case, as well. Or maybe with fewer dollars at stake they can slip in where a large institutional investor would find it difficult. Either way, they’re on their own – Samorajski isn’t giving out any advice on how to deploy your dry powder. He’s just looking for the proper diversification to keep IPERS on solid footing.

Proposed Flat Tax: How Fair Is It?

BY STEVE DINNEN

The likely shift to a flat state income tax – outlined last week by Gov. Kim Reynolds – is welcome news to high-income Iowans who have until recently been burdened by the nation’s ninth-highest state tax rate. For poor Iowans, it’s just one more rung in the regressive tax ladder they climb day in, day out.

States typically apply progressive structures to taxes: The more you earn, the more you pay percentage-wise. Iowa used that model in 1934 when it first implemented taxes, which started at 1% and climbed to 5% for earnings above $4,000. Brackets and rates varied over the years, but the progressive structure prevailed. A flat tax, if it happens, scraps that in favor of 4% for rich man and poor man alike.

Flat taxes are common. Everyone pays the same tax for a pack of cigarettes, or a gallon gasoline. Sales taxes are charged everyone at the same rate.

Income taxes are one of the few taxes that are progressive (also called graduated). If you’re better off, you can chip in a little extra to help run the state. If you’re poor, well, we’re going to go easier on you. Or so the thinking goes.

In an interview on WHO-TV, reporter Dave Price asked Reynolds if she thought the flat tax proposal is fair.

“It makes us competitive,” she said. Sorry, Governor, competitive is not a synonym for fair.

New Investors Optimistic About 2022 Stock Market Outlook

BY SARH O'BRIEN FOR CNBC.COM

The stock market’s newest investors appear to like what they’ve seen so far.

Among individuals who began investing last year, 86% plan to increase their stock holdings in 2022, according to a recent survey from Investing.com. This is despite fewer of them (67%) making a profit in 2021 than more experienced investors (87%).

They also largely expect stocks to rise in value this year (84%) more so than more seasoned investors (75%). Yet they may want to brace for turbulence.

“After wrapping up another strong year of gains in 2021, there are plenty of reasons to be cautious about the stock market in 2022,” said Jesse Cohen, senior analyst at Investing.com. READ MORE.

How Much Are Travel Miles and Points Worth in 2022?

BY SAM KEMMIS AND MEGHAN COYLE FOR NERDWALLET.COM

Making the most of travel rewards requires some understanding of the basic questions, like how much each reward currency is worth. Earning 100,000 points sounds great, but what does that mean in terms of dollars?

To find out, NerdWallet performed a comprehensive, data-driven analysis of 15 airlines, seven hotel programs and nine credit card rewards programs. We compared cash and award bookings across many dates and cities to determine how much actual value you can expect to get from any given points or miles. READ MORE.