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Originally posted by Adder
No. You just have to assume that the next 40 years (or any given future 40 year period) will be totally unlike any prior 40 year period. Indeed, you need to assume that every year in the the next 40 years (really more like 60+ because you don't take it all out at once either) will be like 2001, 1987, or the other handful of rough years.
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No. I'm not talking about every year being a bear market. One very bad year will cause a whole lot of pain for people who are relying on SS as their safety net. Ask anyone what was planning to retire in 2002 what happened to their plans. Then consider what would have happened to those people if they were completely dependent on their private savings, and if those private savings, even in a good-case scenario, had been only enough to cover basic living expenses.
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You are talking about getting in at $50 a month over 40 years. That is not "getting in during a run-up."
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Once again, no. The "run-up" to which I refer is not caused by a single investor, but by the aggregate of people putting a substantial portion of their SS taxes into the market.
In 2002, SS revenues were over $615 billion (and that was a relatively low year given the performance of the economy that year). I don't know what the current Bush plan is, assuming there is such a thing, but people have floated the idea of half of SS taxes going into the market -- even if it's half of the employee's contribution, that is a huge chunk of money suddenly added to the market. Particularly if the investment choices are restricted to a much smaller subset of the overall market, as many have proposed.
eta: To put this in perspective -- assume that PRAs result in an additional $300 billion pumped into the market each year. That's $25 billion/month, and well under half of current SS revenues. In November 2004 total inflows to stock mutual funds were about $21 billion -- one of the highest months all year. Remember how fast the market rose in November? (And yes, I know -- investments are not limited to mutual fund investments, but looking at them is instructive.)
When you talk about putting half of SS revenues into PRAs, and allowing people to invest those PRAs in only a narrow slice of the overall market, you are creating strong potential for a run-up -- one that will benefit current investors but risks serious harm to those who only get in durin the run-up.
