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February 8, 2005
An Investment Analyst on Privatizing Social Security
In a "Message to Members" Eric M. Kobren, Editor of Eric' Kobren's Fidelity Insight, cautions against privatizing Social Security. He makes the following observation;
Most people lack the long-term investment discipline that’s needed to withstand market cycles that can devastate a portfolio. Others simply chase past performance, allocate their assets inappropriately, try to time the market and don’t appreciate risk. In fact, research shows that equity investors have, over the long term, only earned 2% a year versus the S&P’s 12%, due to these mistakes.
Kobren, of course, is trying to sell his newsletter. When an analyst says something like this, people should lesson even if they do not necessary pay any attention to his other advice.
This is in contrast to the experience of the C-Fund available to federal employees which George Will outlines in his February 14, 2005, Newsweek column. The average rate of return, between 1988 (when the fund started) and the end of 2004 was 12.1%. This is a managed common stock fund with low overhead and no commissions. It does not represent the experience of the average investor.
Posted by Duane Smith at February 8, 2005 3:17 PM | Read more on Current Events |
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Comments
Isn't it true that we already have "private accounts"? They are called IRAs, both traditional IRAs and Roth IRAs. Of course, they are voluntary, not mandatory. Why doesn't someone propose making IRAs mandatory? That would accomplish the goals of the President's plan without cannibalizing Social Security.
Posted by: Glen Griffith at February 14, 2005 11:13 PM
I tend to agree with you. Even making so people have to op out rather than op in to an IRA would likely increase participation without making it mandatory. Raising the max contribution would also be a good thing.
Posted by: Duane Smith at February 15, 2005 9:15 AM
I've been investing in stocks for several decades, since I was a paper boy at age 13. My experience is evidence to support Kobren's statement that "equity investors have, over the long term, only earned 2% a year versus the S&P’s 12%." I've picked some winners. I've picked some losers. I've picked good stocks that went up, but then they became losers and went down. Of course, I payed a lot of stock broker commissions and mutual fund management fees along the way. I really don't know what my long term performance has been, but I believe I would be better off today if I had just bought US government Savings Bonds.
Posted by: Glen Griffith at February 15, 2005 3:31 PM
Sorry, comments are closed for this post.
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