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Monday, August 23, 2010

So where are people supposed to put their money?
Posted by Jill | 5:28 AM
The Republicans (and seemingly the Obama Administration) are salivating to get their mitts (or Mitts) on Social Security and dump it into the pockets of Wall Street executives, insisting that "people should be able to invest" for their retirement. I'd like to ask Paul Ryan: Where do you suggest people invest?

As of October 2009, the S&P 500 is DOWN just over a point over the last 10 years. From March 24, 2000 to March 24, 2010, the Wilshire 5000 of more than 6,700 U.S. companies of all sizes produced an annualized return of -0.32%, including dividends reinvested and a total over the decade of -3.11%. The Russell 2000 index of the 2000 smallest stocks is up only 4.03% over the entire 10-year period (not annualized), and the Russell 3000 is basically flat at -0.07%.

Where are there any returns at all? Treasuries. In other words, investing in the United States government. The Barclays 7-10-year Treasury Bond fund has produced a 7.14% annualized return over ten years. So let's rush into bonds, right? Wrong. Paul Price explains why.

How about tangible assets, then? There's always real estate, right? Buy a house so you have something that can appreciate over the long term, right?

Wrong.

Hate volatility? Don't want to risk principal in markets that are going nowhere? How about just putting your money in a nice, safe bank CD? The highest 5-year CD rate right now is 2.96%. Hey, at least it's something. But what about inflation? Don't investment companies usually say to take into account 3-4% inflation every year? Isn't that the whole rationale behind investing in the stock market? Even the above link to AXA Equitable puts out the conventional wisdom of the stock market outperforming inflation...except now they have to go back to 1926 to get there!

So send a link to this post to all your friends, especially the younger ones, who think that turning Social Security into a stock market fund is a swell idea; that they'll be more guaranteed their payouts when the time comes. Because the only purpose of putting Social Security into the stock market is to generate revenue for investment bankers. And given the market's performance over the last decade, unless you're lucky enough to have a 401(k) with an employer match, and you've put it into some fixed vehicle paying 3% a year, you've been losing money.

Now remind me again why Republicans are more trusted on the economy.

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Anonymous Anonymous said...
bravo. I've been asking the same question for 2yrs. Decided to buy a little property (questionable, might hold its value) and a piece of art (signed reproduction) instead of giving cash to banks. WTF are we supposed to invest in??
8/23/10, 2:26 PM  
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