Social Security and Medicare shortfalls

[jreeves]

I'm sorry, but that doesn't explain anything (I'm well aware of what capital gains are, so spare me the rhetoric). The stock market is ultimately limited to economic growth and dividends.

And no, you won't find thousands of articles that say the return for mutual funds will be 10-12%. They will say previous returns have been 10-12% and prior returns are no guarantee of future performance.

And your little conspiracy theory on Buffett is ridiculous. He's looking to buy individual securities, not the market anyway.

Where has Buffett made his fortune? I can see over a hundred years of perfermance is irrelevant to you but a period of 17 years which Buffet refers to is. Don't you think people usually pay SS taxes over 17 years in their lifetime?

 

[Toro]

The math you're claiming is impossible.
http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm


Interest rates can't fall forever. Corporate profits as a percentage of GDP can't rise forever. Dividends are sporting a measly ~2% yield. Unless you're expecting GDP to rise at a 10% annual rate (an expectation that will get you laughed at in most economic circles), how do you expect to earn that 12% return?

The real rate of the economy has risen at about 3% per year. The rate of inflation has risen about 3% as well. Profits of larger companies tend to grow faster than the real rate of profit growth because of efficiencies inherent in large corporations. Add another 2%. Then, stocks over many decades have been re-rated higher because of increasing understanding of the economy and financial markets. Add another 2% to get to a 10% return over the last 100+ years.

However, your return is very much dependent on when you measure. Returns on stocks have historically risen in a somewhat stair-stepped manner, where long time periods of large returns are followed by long time periods of flat returns. For example, from 1966 to 1982, the Dow Jones went up 0%. After inflation, the Dow did not get above its 1966 levels until 1991.

You are correct in that stocks will not return the historic norm IMHO. Instead, stocks are more likely to return 6%-8% over the next 20 years, and probably less over the next 10 for a variety of reasons.

But the return on stocks is still going to beat bonds, and will still do better than the securities in the SS trust fund.

 

[Toro]

Where has Buffett made his fortune? I can see over a hundred years of perfermance is irrelevant to you but a period of 17 years which Buffet refers to is. Don't you think people usually pay SS taxes over 17 years in their lifetime?

At the last Berkshire meeting, Buffett said if he were running a large pension plan with at least a 20 year time horizon, he would put 100% in a stock market index, ie. the market.