Why investing SS in the stock market is a horrible idea.

[OohPooPahDoo]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

 

[Norman]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

If all of the stock market is down. I think it's reasonable to assume that the taxpayer receipts are also equally down.

What I am saying is, if there is an economic disaster, you won't be getting your retirement either way. That is why the argument that you can't invest pensions but instead the money should be spent by government is nonsense.

Of course you should invest the pensions all over the place and over the world. Not just stocks. That is likely to be the most stable and profitable way.

 

[OohPooPahDoo]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

If all of the stock market is down. I think it's reasonable to assume that the taxpayer receipts are also equally down.

What I am saying is, if there is an economic disaster, you won't be getting your retirement either way. That is why the argument that you can't invest pensions but instead the money should be spent by government is nonsense.

Did Japan default on its debt? I don't recall that it did. Any Japanese person who had invested in Japanese debt instead of the stock market would have come out way ahead of everyone else. Your argument is based on the false presumption that nations always default on their debts when their stock markets crash. Although this is certainly possible and the two have coincided in the past, it is hardly a rule.

 

[Avatar4321]

They idea that you cant invest your own money is ludicrous.

But then so is the lie that SS is our own money. It's a ponzi scheme. Our money is going to people who are already collecting.

 

[DiamondDave]

hence why the government should have no hand in this at all... people should be able to invest on their own without forced government participation in the scam program slush fund

 

[Norman]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

If all of the stock market is down. I think it's reasonable to assume that the taxpayer receipts are also equally down.

What I am saying is, if there is an economic disaster, you won't be getting your retirement either way. That is why the argument that you can't invest pensions but instead the money should be spent by government is nonsense.

Did Japan default on its debt? I don't recall that it did. Any Japanese person who had invested in Japanese debt instead of the stock market would have come out way ahead of everyone else. Your argument is based on the false presumption that nations always default on their debts when their stock markets crash. Although this is certainly possible and the two have coincided in the past, it is hardly a rule.

What I said has nothing to do with defaulting. It's about getting your retirement. If tax receipts or productivity of an economy permanently goes down then so does the retirement money if it's based on a pay as you go plan. Or perhaps it's just taken from other services that you otherwise would recieve, or perhaps your taxes are raised. Either way you lose it just like in the stock market case (of course, in stock market case you at least have some constant profits).

On the other hand if your money is invested all arond the world in many asset classes, that's already much safer and obviously more profitable (when there is no crisis) than "investing" it in government to spend.

Besides that government schemes of this size obviously carry tremendous political risks.

 

[Skull Pilot]

I'll take my chances with a balanced portfolio any day over letting the fucking miscreants in the government handle my money.

 

[Toro]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

Looking over 10, 20 or 30 years for an investment fund that is supposed to last forever is simply wrong and bad economics. The Nikkei 225 peaked in 1989. But over the past 50 years, the Nikkei 225 has generated significantly positive returns.

Over 50 years, a balanced portfolio of stocks and bonds has generated roughly 8% a year. Over the same time period, a portfolio of 100% government bonds has generated about 4%. $100 million invested at 4% per year will be worth $460 million in 50 years. $100 million invested at 8% per year will be worth $4.6 billion.

This is a no-brainer. That's why other countries such as Canada and Norway invest their equivalent of SS in stocks.

If you think that the stock market won't beat the government bond market over 100 years or more, then there is something seriously wrong with the US, and those SS promises won't be paid anyways.

 

[Norman]

I'll take my chances with a balanced portfolio any day over letting the fucking miscreants in the government handle my money.

But also I would have the government manage the money rather than spend it. As of right now no one is managing your money in the government - it is spent outright.

The system right now is unfortunately the worst imaginable. Especially in times of other policies which also discourage people from saving anything. The problem is this disaster of the system is hard to fix as the money is already spent. If you attempt to fix it people will lose retirement. It's a disaster.

 

[Norman]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

Looking over 10, 20 or 30 years for an investment fund that is supposed to last forever is simply wrong and bad economics. The Nikkei 225 peaked in 1989. But over the past 50 years, the Nikkei 225 has generated significantly positive returns.

Over 50 years, a balanced portfolio of stocks and bonds has generated roughly 8% a year. Over the same time period, a portfolio of 100% government bonds has generated about 4%. $100 million invested at 4% per year will be worth $460 million in 50 years. $100 million invested at 8% per year will be worth $4.6 billion.

This is a no-brainer. That's why other countries such as Canada and Norway invest their equivalent of SS in stocks.

If you think that the stock market won't beat the government bond market over 100 years or more, then there is something seriously wrong with the US, and those SS promises won't be paid anyways.

I don't think that you can call it investing to bonds when the government does it. It's SPENDING, no one is investing anything. It's misleading to even look at the treasury rates because ultimately, YOU as taxpayer pay for the interest on those bonds anyway. Thus you don't gain anything even if the interest is paid in double.

But IF we would look at the situation as such, you would basically have to say that the US government bond is and will be the BEST investment in the world to say this system is favorable. Since the current system forces your retirement money to be invested in those bonds and nothing else can be considered.

I think freely investing professionals would beat a static investment by a bureucrat every time.

 

[peach174]

Interest rate for U.S. Treasury Bonds
1 year = average. 037 %
30 years = average 3.64%

Stock Market Interest rate
1 year = average 8.49 to 12%
over all average over the years 14.8%

Even when you lose in the market, the interest is always higher the Treasury Bonds.
If I was a young person I would want my SS in the market which always makes more interest than the treasury bonds.

 

[OohPooPahDoo]

They idea that you cant invest your own money is ludicrous.

The idea that history can't repeat itself is even more ludicrous.

But then so is the lie that SS is our own money. It's a ponzi scheme. Our money is going to people who are already collecting.

Ponzi schemes by definition require fraud. Social Security is a law that anyone can read.

 

[OohPooPahDoo]

hence why the government should have no hand in this at all... people should be able to invest on their own without forced government participation in the scam program slush fund

And when the stock market crashes we can all go hungry together?

 

[OohPooPahDoo]

If all of the stock market is down. I think it's reasonable to assume that the taxpayer receipts are also equally down.

What I am saying is, if there is an economic disaster, you won't be getting your retirement either way. That is why the argument that you can't invest pensions but instead the money should be spent by government is nonsense.

Did Japan default on its debt? I don't recall that it did. Any Japanese person who had invested in Japanese debt instead of the stock market would have come out way ahead of everyone else. Your argument is based on the false presumption that nations always default on their debts when their stock markets crash. Although this is certainly possible and the two have coincided in the past, it is hardly a rule.

What I said has nothing to do with defaulting. It's about getting your retirement. If tax receipts or productivity of an economy permanently goes down then so does the retirement money if it's based on a pay as you go plan. Or perhaps it's just taken from other services that you otherwise would recieve, or perhaps your taxes are raised. Either way you lose it just like in the stock market case (of course, in stock market case you at least have some constant profits).

Governments borrow more in bad economies to make up for lost revenues. Treasuries outperformed the stock market on average throughout much of the depression - and as already pointed out, the Japanese government has continued to pay its debt obligations. Social Security is hardly bullet proof but that fact should not induce us to expose our retirements to even greater risk.

On the other hand if your money is invested all arond the world in many asset classes, that's already much safer and obviously more profitable (when there is no crisis) than "investing" it in government to spend.

When there is no crisis? You're just going to ignore the potential of an economic crisis?

In the 1930's the world was in a depression. If you had invested worldwide you might well have fared far worse than in the U.S.

I submit that

a) history can repeat itself and

b) the future will always contain more extremes than history

 

[OohPooPahDoo]

I'll take my chances with a balanced portfolio any day over letting the fucking miscreants in the government handle my money.

The expected return of a balanced portfolio is the same as the expected return of U.S. Treasuries.

If you're going to buy the buy and hold balanced porfolio line you should at least hedge your risk with put options.

 

[Sallow]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

It's not a "myth".

Stocks generally perform well over the long term. But if you invest, you need to be fully aware that the market is not a bank. Investors need to pay close attention to their investments and the economic climate.

 

[OohPooPahDoo]

It's not a "myth".

Stocks generally perform well over the long term.

And you base that assertion on what exactly? Generally when? The past? Or the future?

But if you invest, you need to be fully aware that the market is not a bank. Investors need to pay close attention to their investments and the economic climate.

Because if investors just pay close enough attention they can all avoid losing money?

 

[Mad Scientist]

Stocks generally perform well over the long term. But if you invest, you need to be fully aware that the market is not a bank. Investors need to pay close attention to their investments and the economic climate.

Unless you're a Too Big To Fail Bank then you get a Taxpayer Funded Bailout. See how that works?

OP doesn't know how SS came into being in the first place.

 

[peach174]

hence why the government should have no hand in this at all... people should be able to invest on their own without forced government participation in the scam program slush fund

And when the stock market crashes we can all go hungry together?

It has crashed big 3 times, 1929,1987 and 2000.
But it is still around.
You never lose all of your money in stocks.

According to a 2009 Urban Institute report, those hit hardest by the 2008 financial crisis were seniors with investment-based savings or retirement plans. Millions of people saw the value of their investments drop dramatically in 2008, but those that stayed in the market saw many of their investments recover in 2009 and 2010. Those who bought shares in healthy companies during the recession made a considerable amount of money. However, many seniors had their savings in mutual funds, stocks and property and, unlike younger people, seniors were living off these savings and many could not wait for the market to recover to sell their houses or withdraw money from accounts for monthly or yearly expenses. As a result, many senior citizens lost 30 percent or 40 percent of their life savings, or even more.
Even when it goes down you still have more in the long run in 30 years than with the government who sets how much you get each month.

You would still have more than what the government sets up.
Most would get around or close to 1 million in 30 years in stocks at retirement.

SS average monthly payment is around 1,000.00 each month. That's 12,000.00 a year ( this amount will go down by quite a bit for the young in the future, in order to keep it going). They will maybe get only 6000.00 or 700.00 a month.
If you live for about 30 years after retirement you would get about 360,000.00 from the government at 1,000.00 a month.

In the market you would get 3 times or more that amount, even with stock crashes, because the market always makes a come back.

If you get close to 1 million at retirement, the yearly amount would be about 27,777.00 to 28,000.00 a year, rather than 12,000.00 a year.
You would be able to pay for unexpected emergencies rather than having to wait for the 1st of each month.

You would be able to give that money to your spouse or children if you died early.
It should also not be taxed.

 

[FA_Q2]

There is a myth perpetuated in the world of finance that over long periods, the stock market will always net positive returns - some better than others - but it will always at least beat U.S. Treasuries.


This myth is based on the past performance of the U.S. stock market alone. Using on U.S. data creates quite a selection bias, as there is no fundamental reason to believe the future of the U.S. markets could not possibly look like the past markets of nations other than the U.S.

To give an example - look at the Japanese stock market over the past ~25 years. The Nikkei 225 has not even recovered to HALF of what it was before the crash.

First off, SS has already defaulted. The taxes that go into SS were doubled and the payout was unchanged. The future of SS is almost guaranteed to default as well when those promised benefits are changed (aka. Retirement age increased or benefits decreased). Of course, the government will not call this a default because it will not literally default on the debt it owes to itself. Instead, it just stiffs the people that really own that debt and does not pay them what was guaranteed.

The reality is that you cannot find a 40 year period where stable investments led to a worse return for investments. That makes SS invested rather than spent FAR superior, end of story. The only way that you are capable of skewing this reality is by cherry picking specific instances in specific markets. That is not a strong argument. If you want to keep SS as a program, the best way of going about it would be to allow control over that money in a limited fashion where you could choose to invest in a limited number of ways.