What is the TIAA?
The TIAA, or Teacher’s Insurance and Annuity Association, is the leading financial services provider for individuals and companies in the academic, research, medical, cultural and governmental fields. The organization offers a wide range of services such as retirement plans, mutual fund investments and IRAs, to name a few.
Quick TIAA Facts
- 5 million individual customers served
- 15,000 organizations served
- $1 trillion in assets under management
- Over $390 billion paid in benefits since 1918
History of the TIAA
The TIAA was founded in 1918 by Andrew Carnegie and his organization, the Carnegie Foundation for the Advancement of Teaching (CFAT). The CFAT is the leading education policy and research center in the United States and aimed to increase the use of improvement science across the country. More specifically, its mission was to utilize improvement science as a framework through which to approach reforms in the education and medical fields. It enforced research-backed proposals for change and encouraged debates and discussions about organizational changes in a bid to decentralize decision making.
In 1933, Albert Einstein became a beneficiary of the TIAA – a fact that the organization played up during a 2001 marketing campaign. Historically, the TIAA (like most institutional investors) has focused on fairly conservative investments. Today, the organization’s investment portfolio is heavily diversified and consists of many asset classes and securities with varying betas.
To this day, the TIAA has disbursed close to $400 billion since its inception. What’s even more impressive is that the organization has never missed a payment due to any of its plan participants in over 100 years of operation.
TIAA’s approach to investing
The TIAA has four core value when it comes to investing:
- Personal: Tailoring plans to individuals’ financial goals and situation
- Dependable: Always being there for plan participants to help in financial decision making
- Objective: Considering all available options and suggesting the best course of action for each individual
- Specific: Helping participants find funds and allocate capital between them
How retirement plans work
Just like with any investment, the most successful retirement plans utilize compounding interest accrued from investment returns. Below are examples illustrating how a retirement plan can build up over time:
The table on the right models how an initial investment of $10,000 would grow if invested in securities providing a 10% annual return over a 40-year period. The table on the left shows the same phenomenon, but with an added $500 per year contribution. In the case of increasing values of securities, the “interest” in this example can be thought of as re-invested capital gains.
The most important factors are the size of the initial deposit, rate of return and investment time horizon. A good retirement plan organized by a financial services agency like the TIAA enables employees to personalize these inputs in order to better suit their needs. For instance:
- Initial deposit: Some employees may not have a lot of cash available to deposit into the account, thus may opt to begin contributing in future years after having saved up some more. Alternatively, employees capable of making a large deposit can opt to do so right away and benefit from a longer compounding period.
- Rate of return: While a high-return investment sounds great, it will usually carry more risk. Employees should be given some say about which types of securities they feel comfortable investing in. For example, a fairly young employee with relatively low monthly living expenses may be able to stomach a higher-risk investment in exchange for the possibility of high returns. Alternatively, an older employee with lots of monthly obligations (car payments, mortgage payments, debt repayments, etc.) would rather opt for lower risk, lower return investments in case he/she needs to tap into their retirement fund.
- Time horizon: Depends on when an employee decides to start contributing to their plan. This factor is highly dependent on the age of the employee, or rather how many working years they have remaining before going into retirement. Having a long time horizon is the best way to improve the performance of the retirement plan since this would simply increase the number of compounding periods – effectively providing additional returns with no additional risk.
If you want to learn more about different institutions and firm investment strategies, check out this article on Corporate Strategies.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will also be helpful: