Conventional wisdom has it that pension fund monies should mainly be invested in bonds, which are clearly less risky. However, this is not the view of Warren Buffett. In an article in Business Week of October 2, Buffett recommended that pension monies be invested mainly in equities and often in portfolios of as few as 20 shares. Before Buffett’s Berkshire Hathaway took control of Northern Santa Fe in 2010, the railroad pension fund held hundreds of securities and was only 73% funded, but by the end of 2016, the plan had become 9% overfunded, with four shares accounting for more than 50% of assets. Buffett’s philosophy is really not that radical if one considers that over 100 years, the market risk premium in the US, UK and SA has been about 6% per annum (equity returns outpaced bonds by 6 percentage points per annum). South Africans who invested their pensions in overseas equities would have done even better — far better. It is not then surprising that many pension funds in SA have ...
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