Charles E. Robertson
Announcer, Vol. 33, Iss. 2

Long Term Investments

There was a campaign slogan several years ago. “Are you better off now than you were four years ago?” I am glad that in the upcoming AAPT elections I will be running unopposed for I would not like to defend the question, “Is the AAPT better off financially now than it was two years ago?” But, since I am unopposed, this is exactly the question I would like to address in this issue.

The answer is a definite, “Depends on how you look at it.” Our operating budget, the combination of incoming money and outgoing expenses are balanced and we have all kinds of projects that are helping the physics teaching community. So from the view of our everyday operations, AAPT is in very good financial conditions. Maybe I’ll discuss our operations budget in a future article. But for now, I would like to discuss our investments.

As we all should do in our personal lives, the AAPT has a savings account. We call it our long-term account. Some call it a rainy day account. Our goal is to have about $5 million in that account, approximately matching one year’s operating budget. Movement toward that goal went quite well under the direction of our former treasurer Alex Dickison. Under his guidance, and that of the Investment Advisory Committee, the association developed an investment policy and began investing with Legg-Mason, a company that handles similar investments for many associations with investment goals similar to ours. A few years ago we opened another long-term account with TIAA-CREF believing that diversity in investment companies was a good thing. Basically our investment policy calls for us to invest 70% of our monies in equity accounts and 30% in more conservative areas. Since this is a long-term account, we feel this is a prudent policy.

The table shows the size of our long-term account for the past several years. You can easily see the impact of the wide-spread market losses in our losses.

The amounts listed under “Additions” are amounts we deposited into this fund. The column “Gains/Losses” include reinvested dividends plus gains or losses due to the decline of the equities market.

The deposits to this account come from a slow accumulation of cash available from our day-to-day operations. It is common for the association to have an excess of cash in the winter months when members are paying their dues and libraries are paying for their journal subscriptions. Then, when summer arrives, this income dries up and we need cash to pay the bills. When we develop an excess of cash in our operations fund (our checking account), we transfer some to a short-term account that earns interest and is completely safe from market fluctuations. In the summer we can then withdraw cash from this account for our daily expenses. Occasionally this short-term account grows larger than is necessary so we transfer it to the long-term account. (At the present time we have about one million dollars in this short-term account and that is about twice what we need to carry. Thus about $500,000 could be transferred into our long-term account. However, with the uncertainties in the market, we have decided it is better to keep this surplus in this very conservative fund. When market conditions improve, this money will be transferred to a long-term investment.)

This decline has hit the AAPT pretty hard as you see in the table above. However, this decrease has had no effect on our day-to-day operations. We need to continually remind ourselves that this is a long-term account and that we should expect fluctuations. That’s easy to say.

Recently, the Investment Advisory Committee voted to recommend to the executive board that we transfer all of our funds, long-term and short-term, out of Legg-Mason and into TIAA-CREF. The Investment Advisory Committee rationalized that since changes in any long-term well-balanced portfolio would mirror the overall market, a larger gain will be realized by investing with a company with lower fees. Because TIAA-CREF is known for their low fees and that company handled the accounts of Einstein and Feynman (at least according to their ads), the IAC decided AAPT’s investments should reside with that company. The board agreed, so as of the first of this year, 2003, that is where our funds are residing.

P.S. In the previous Tidbits article, I discussed the bankruptcy of RoweCom, a subscription consolidator. Your executive board voted to continue the subscriptions to the American Journal of Physics and The Physics Teacher to any library that had subscribed to those journals through RoweCom. EBSCO Industries Inc., another subscription agency, may buy the assets and responsibilities of RoweCom but those negotiations are still in progress. I’ll keep you posted. This is a perfect use for a rainy day fund.