Many of the recent problems in the newly underfunded pension, endowment, and foundation world stem from (1) unrealistic return expectations and (2) a desire to spend more than market returns can support. Neither the need for a particular rate of return nor the hope for perFOrmance that can sustain outsized spending allows us to expect that return. Our industry pays scant attention to the concept of "sustainable spending," which is key to effective strategic planning for corporate pensions, public pensions, foundations, and endowments— even for individuals. Sustainable spending typically starts with sustaining the real value of the assets. This step requires realistic return assumptions. We have noted previously that "hope is not a strategy." We need to know how much we can spend on a nearly risk free basis if we want to identify how much of our intended spending is coming from wishful thinking, from mere hope. This knowledge sets the stage for a reasoned, risk-controlled quest for the incremental returns that we hope to achieve.
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