Posted on 09/21/2008 12:45:52 AM PDT by Jim Robinson
Barak Hussein Obama today laughed and said John McCain wants your social security invested in the stock market. How would you have liked your social security invested in the stock market this week, he asks? And his liberal Democrat audience howled in approval of his financially astute remarks.
But wait. Not that the stock market did all that bad this week, but we don't invest our retirement funds week by week. They're there for the long haul. In the long run, the stock market returns 9% to 10% annually on your investments. They say your Social Security account returns approx 1.5% annually. I don't know how they calculate that though, seeing as how the social security lock box is empty. Your social security account is zero. It's nothing but IOUs. And those government IOUs just got watered down this week by approx a trillion bucks.
No, I don't think I'll agree with Obama on this one.
We’re in the same boat. As it is, I can’t afford to retire until I’m 70 and it’s highly unlikely that I’ll live that long. Well, if my wife outlives me, they say she’ll get 1/2 of my social security benefit when she reaches 66 years of age. That will almost pay the utility bill. Thank God I’ve got enough insurance to see her through, providing I can continue the premiums up until the month I pass on.
Stock market. In fact, we need to start the conversion to self-invested retirement accounts ASAP. Otherwise the SS system is going to eat us alive.
Obama is an idiot, but good news; SO are his followers. The market recovered and returned to about the same place it was Monday. I was hoping you were going to give us an example comparative. Heaven knows I am too lazy. lol
First off, I’m certainly not here to defend Social Insecurity as an “investment plan”.
Now to my point - I’ve heard this “in the long run, the stock market averages 10% a year (Dave Ramsey even says 12%)” since, well...forever. I’d never really questioned the figures - I just took them as fact.
The only problem is, looking at this historical chart of the Dow http://finance.yahoo.com/echarts?s=^DJI#symbol=^DJI;range=my
and plugging some numbers in Excel, it appears that this statement is patently false.
As an example, if you invested in Jan, 1950, the Dow was at 235. In January 1975, the Dow was at 768. That’s not 10% annually. It ain’t even close. From what I can see, the ONLY time the market has performed that well over a stretch was from ‘75-2000.
Am I missing something, or are the financial advisors who’ve been pushing this line for the last 20+ years bold-faced liars?
I’ll give you a comparison. The stock market chart from the 30’s until today looks like a hockey stick. The social security chart from inception to-date resembles a flat line. And as the man said, seeing as how it doesn’t even beat inflation, it’s actually a negative.
You mean, we have a choice?
Regards,
I am not sure who those people are but I think a more true figure would be around 7%. I think that number will even bear out in the time frame you provided.
You’re right. The returns were higher in the later years. I have no idea what rate of return they were claiming in the 50s and 60s. I was too young to care, but my guess is, they were probably using a lower number. Mortgage interest rates were much lower back then too. I was in the service in the latter part of the 60’s and I invested in savings bonds. I think the rate of return was something like 2.5%.
Well, one of them is at the top of this thresd - and I don’t say that to bash Jim, only to illustrate that it is what most people think.
Market. Easily.
By the way, if the vertical scale on the chart you linked were equally graduated, your chart would resemble a hockey stick. The line from about 1985 onward would be almost straight up and it would be about ten times higher than it is.
Ahh, I missed your post, JimRob.
Being a history guy, when someone says “long-term, I think the “real long term”, heh. Twenty-five years is a blip on the radar screen :)
Yeah, I saw that they truncated the chart, and I won’t deny that if you rode the market from ‘75-00, it was a very profitable trip.
I am like many who have already stated it..
I have been forced to pay into Social Security since i started to earn wages..
But after finding out that all SS income goes into the general fund and is ESTENTIALLY spent by the house and the senate for a wide range of expenses..
I would MUCH rather have the right to invest MY money for MY SS as I see fit.. but I am FORCED by idiots who tell me that the government will do that for me.. and fail.
If you were invested in the market as opposed to investing in SS you would be far better off, whether it is 7,8,9 or 10%. Analysts will differ in the methodology used to produce these numbers. Unless we are discussing solely index funds the percentage gains are not worthwhile in any case.
That is why I prefer fixed-rate guaranteed annuities at 80% investment and then use 20% of my contribution on a somewhat higher risk investment with a better possibility of a higher return. The market has been good to me but paramount in this is the flexibility to get in and out and change course at my discretion.
Better minds than mine can argue the average yearly percent increase in the various indexes but I trend towards the conservative number. I think Jim’s larger point is that SS is a huge wealth distribution blackhole that many a hard-working American has poured money into that they will never see. The Government will always mismanage funds of this volume. They make their decisions based on pandering for votes. When we make the decisions, we aren’t subject to any such temptations or constraints. Pardon my TMI. :)
I took an estate planning course while in college in the 1960s, and I seem to recall the instructors talking about 7% annual return as being a reasonable and safe “target” for your investments.
I don’t think you can directly look at the DOW over these years and calculate the annual return of the component stocks. The DOW is an index number based on the daily sales price of the component stocks. It doesn’t really reflect the stock’s earnings (dividends). It just reflects stock appreciation. The earnings re-invested act like compound interest and can build the total quite quickly... over time.
As I stated in my first post, I am NOT arguing that Social Security is in ANYTHING other than a bad,bad,bad investment.
The 9-10% comment caught my attention, and I’m just having a bit of an epiphany about the stock market.
I’ve got to get to bed, but I think I may play with some numbers tomorrow. It might be that the stock market isn’t the best place to put SS funds (as if they existed, lol) from a risk-reward perspective? Maybe something with a slightly lower return, but with less chance of going flat (or worse) for 10-15 years?
I’ll be honest - looking at the actual rate of return on the Dow over a loooonng period of time has blown my mind a little - and not in a good way. Despite the good he does, Dave Ramsey needs an @ss-whooping for spreading that 10-12% long-term crap around. It just ain’t so.
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