Posted on 11/30/2005 11:01:03 AM PST by James Cannon
Common Sense Investing By Jim Cannon
For years there has been a tug-of-war between banks and brokerage houses to capture the savings of the American people. For years we have gone where the returns seem to be the greatest.
In the early 1980s interest rates, and therefore CD rates, were probably higher than we will see again in our lifetimes. 12% - 18% per year was not uncommon, and the banks brought in billions of dollars from savers who had no idea what certificates of deposit were prior to that time.
Even as interest rates returned to more rational levels, CDs were renewed by their owners each year almost out of habit. Then, in the mid 1990s, interest rates began dropping and CDs no longer seemed attractive. In fact, seniors on fixed incomes started looking for alternative forms of investing in order to keep pace with the cost of living.
Annuities, both fixed and variable became the vehicle of choice for millions of retired people who needed more from their savings than a simple interest payment.
Then came the late 1990s and the everyone is getting rich but me syndrome. Money went into the stock market whether it was prudent or not. A meteoric rise in indexes followed an irrational rise in new company valuations...a bubble which finally burst early in the new century.
Interesting how we Americans love to chase returns isnt it? Why then do we accept the least return from the investment we contribute towards most frequently and in the greatest amount...Social Security?
For years we have been sold on payroll deduct methods of paying for everything from health insurance to auto loans, and the never had it, never miss it theory of no hassle bill paying and investing has become prevalent in our workplaces. In fact, we have invested in 401(k), 403(b), 457, stock plans and even savings bonds through this process that seems to ensure our resolve to save in a seemingly painless manner. We even meet periodically with a representative of these retirement plans, and review our investment selections, plan retirement payouts and change beneficiaries if we choose to do so. It is empowering to do so isnt it? We walk away from these meetings with a sense of pride that comes from planning for the future.
Social Security provides none of this. With the current program, we can find no prideful event of planning for the future, no peace of mind that we have left a legacy for future generations, and most importantly, no hand in guiding our payroll deduct nest egg toward the best investment for the times.
Think about this long a hard. How much would 12% of your wages have earned in the 1980s had it been exposed to 12%-18% rates of return (FDIC insured!). How much would that amount have grown in the 1990s through a diversified portfolio that received a taste of the 30% and greater that followed the stock market rise? For the past couple of years the hot sector was overseas indices. What was the return on our hard earned Social Security deposits? 1%?
Even though the fixed interest rates came back to earth early in this century, the build-up of savings from the 1980s and 1990s would still look very attractive while you wait for the next wave. And wouldnt it be great to have a representative let you know about that next wave?
Why do we settle for less than this? Why do we count on our self managed 401(k) and other programs to supplement Social Security that we do not manage? We should demand the same opportunity for our Social Security investment.
The next time you think about where you would be when you retire if you had a decent rate of return for your Social Security investment, remember everything you have learned about saving and wealth building, and dont settle for less. Social Security requires a 21st century re-build, lets do it right!
James Cannon is IT Director and contributing writer to Strengthen and Save Our Social Security, Inc. website: www.usreform.org
I'd like to see over 100,000,000 investors in our economy one day.
Down to it being normal for high school kids and just about anyone to easily buy shares and invest.
It really can't get much simpler than it is right now.
Pick any brokerage company, they all have on line investing capability, with research tools, tutroials, and all. Even free Finance.yahoo.Com has all the stats on every stock you could want. Don't have time for the research? Then buy Mutual funds with good track records and let the pros so the work.
A 6th grader could do it, and some have, for class projects. Some with Monopoly money, some with real cash.
Anyone who has time and intelligence to read FR has the means to manage a nest egg on-line.
Wealth creation can be the solution to many if not most of the problems today.
Its the usual starting points that seem to hamper folks, from people wanting to use their credit cards, to ease of use in regards to rule and systems that various firms use.
You are absolutely right. To prevent this in the future, we should have our own accounts that are not within the grasp of Uncle Sam and his Raiders of the Lost Trust Fund.
SS and other defined benefit type plans are dreadfully unstable and insecure. They often fail deliver the promised benefits, and have to be revised downward or liquidated (ie, the airlines).
People need to understand that Defined Benefit is NOT more secure, as they continue believe.
Agreed, defined benefit plans are not possible given the unstable interest rate environment. Most of the existing DB plans were based upon an average 7% annual rate if return...which the plans conservatively experienced during the times when they could have earned more...now that 7% is no longer possible, there is no margin for error and the plans are in a state a failure country wide.
This failure is in turn breaking the Pension Guarantee Fund. In essence, there is no longer a safety net. Believe it or not, we are going to have to rely on our selves to save for the future. Let's give ourselves the best chance we can.
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