HJ's Declaration of Demographic War

[Arthur Dent]

When I receive my annual social security statement, it devotes a section to the potential problem with the SS Trust Fund. So, yes, this worries me.

The trustees have been attempting to use the statements as a political tool, but so far have not fudged the actual numbers. Look at the report they just released. You will see that they project no crisis -- only a small, easily fixed shortfall many years in the future.

[Leroy]

Yes it is a great program. Where else can you get a somewhere about 2% return on investment, with no assurances that it will be there when you retire?

Little reward, high risk. Great deal.

[greenback44]

Bah, the main risk with Social Security's Old Age benefit is that the economy will go bust in a big way, which would kill most investments as well. OK, there's the political risk that somebody will try to turn Social Security into a cash cow for Wall Street, but the market tanks often enough to discourage that.

[Arthur Dent]

OK, there's the political risk that somebody will try to turn Social Security into a cash cow for Wall Street, but the market tanks often enough to discourage that.

Yup.

From the Wall Street Journal:

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

With the current crisis, the near future doesn't look much brighter. For the record, the Social Security surplus is invested in Treasury bonds. There really would have been a crisis if we had invested it in the stock market.

[ghostrunner]

OK, there's the political risk that somebody will try to turn Social Security into a cash cow for Wall Street, but the market tanks often enough to discourage that.

Yup.

From the Wall Street Journal:

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

With the current crisis, the near future doesn't look much brighter. For the record, the Social Security surplus is invested in Treasury bonds. There really would have been a crisis if we had invested it in the stock market.

That's really selective. Nine years isn't long term for a retirement investment. If you go back 20 years, the S&P Index is four times what it was then, and eight times what it was in 1980. If I was offered the option to put my SS money in that vs treasury bonds, I'd do it in a heartbeat.

[greenback44]

If I was offered the option to put my SS money in that vs treasury bonds, I'd do it in a heartbeat.

A lot of folks share this sentiment. After reading some behavioral finance stuff, the overwhelming certainty in the stock market is precisely why I'm thinking of getting out.

[Hungary Jack]

OK, there's the political risk that somebody will try to turn Social Security into a cash cow for Wall Street, but the market tanks often enough to discourage that.

Yup.

From the Wall Street Journal:

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

With the current crisis, the near future doesn't look much brighter. For the record, the Social Security surplus is invested in Treasury bonds. There really would have been a crisis if we had invested it in the stock market.

That's really selective. Nine years isn't long term for a retirement investment. If you go back 20 years, the S&P Index is four times what it was then, and eight times what it was in 1980. If I was offered the option to put my SS money in that vs treasury bonds, I'd do it in a heartbeat.

Precisely. And it's not an either/or proposition. You can diversify a portfolio to obtain much of the upside without assuming most of the downside risk.

And who says that the savings of our population should be used as a pool of cheap capital to help fund our government's voracious appetite for spending? I'd feel a lot better if the T-notes I was helping underwrite with my contributions (not to mention what I pay as an employer) weren't used to fund unnecessary farm subsidies, a preposterous war in Iraq, and other largesses of the current administration.

[Radbird]

It's my parents generation's fault.

They're the ones who decided to have so many babies that it became a boom.

Take your beef up with them. I'm just trying to survive here.

[ghostrunner]

If I was offered the option to put my SS money in that vs treasury bonds, I'd do it in a heartbeat.

A lot of folks share this sentiment. After reading some behavioral finance stuff, the overwhelming certainty in the stock market is precisely why I'm thinking of getting out.

I'm not sure what you mean. If you don't share that certainty, you should most definitely get out. Are you saying that more skittishness would make you feel better about your money?

Even if we go by this 9 year timeframe as a justification for ditching stocks, the difference between what treasury bonds and stocks would yield in this timeframe is pretty insignificant, unless you're talking multiple millions of dollars. At my current salary, I'm likely only to make about 1.2 - 1.5 million total for the rest of my life. Taking the amount of that I could save, it would amount to very little no matter what. If I am going to save something, my best bet is to invest in something that at least has the potential to make significant gains.

Below is the S&P 500 performance for the last 60 years. Notice that if you lop off that bump from 1995 to 2002, you have a pretty nice looking curve. And it's not as if anyone should invest only in stocks - they're considered the best bet for gains, particularly for young people. A 60 year old who is just starting to save should hardly invest in them at all. But for the average Joe, a diverse portfolio is always recommended including bonds, stocks, metals, etc....

In any case, if this graph ever starts to trend downward for a significant amount of time, dwindling retirement savings will be the least of my problems. I'm okay with taking the risk.

[Hungary Jack]

There are some precedents for some serious long-term stagnation in asset prices after a huge speculative bubble burst. I think most of the Nikkei in Japan, which ran up fabulously in the early 1980's before crashing to less than 50% of peak in the late 1980's, and has never recovered. There was a huge accumulation of paper wealth that had built up and then disappeared, never to return.

Most economists argue that Japan's export-dependent economy has been fettered by regulation and a lot of inefficiency in its banking system, which prolonged the slump in Japanese share prices. I think the US economy is much more dynamic and robust, which bodes well for stocks in the long-run.