investment math, gov social security beats dow index

<snip>

He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).

To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.

</snip>


http://www.csmonitor.com/2004/1227/p01s03-cogn.html

Message removed by moderator. Click here to review the message board rules.

If you had you would have seen what the writer did was add up all of his and his employer's contribution to SS and compared it to what he would have earned had he invested the same amount of money in the stock market instead.

The point the writer was making was that when he compared the two numbers, guess what SS was LARGER. In effect had he invested his money in Stocks instead of having it turned over to SS, he would have had less money.

Now the article clearly points out this was the result of the Bear Market of 1965-1982. During that time period the market did NOT gain. I remember when the Market first hit the 1000 point mark around 1972 and how it was NOT done again till the early 1980s. Since 1982 we have had an extended Bull market, but that Bear market of 1965-1982 was just Terrible for anyone who invested in Stocks.

The worse part of all of this is all the indications lean to stocks being in a Bear Market for the next 20 years (Like the 1965-1982 Market). You will see increasing energy costs, decreasing Government Spending, and increase taxes. All three have the affect of killing Bull Markets and maintaining Bear Markets.

It doesn't matter what the his share of "earnings" in the SS fund was compared to what his "earnings" would be had he invested privately, but rather what matters is the difference in what "benefits" he will be able to draw when comparing the two options?

I will admit a fair bit of ignorance about the minutiae of the Social Security system, but aren't what benefits one receives based, more or less, on earnings? I see that difference being more or less semantic, but, like I said, I don't know.

The reason it's getting press is because it destroys the contanst conservative chorus that privatization is good because the SS system is inefficient, or at least less efficient than are individual accounts, at grossing a return. Better then, they say, to move money into private accounts so more will be available to investor/retiree. The newswhorthiness lies in the fact that a simple exposition of the facts shows that view to be false; that an amount of money invested, as it were, in the SS system would have earned more over a given period than the same amount of money invested in the group of firms in a given index.

Message removed by moderator. Click here to review the message board rules.

The point remains, as I mentioned earlier, that his analysis is getting press precisely because conservatives, and those masquerading as liberals, have been arguing that, in aggregate, there would be more money to spend for retirement benefits were people allowed to keep personal accounts than there would be available through the social security system. And this analysis shows that to be false, at least in this case.

If people have a problem because the system socializes the benefits, that is, that each individual might not get back what they've put in, and that some people will get more than they've put in, than that's another topic. But, I think, it's not one that even conservatives will address any time soon. Though it's certainly what they want, they'll try to acheive it through obsfucation rather than by being direct. So, they make the argument that the entire system is inefficient - which isn't true at all - when they really want to say is that it is just inefficient for certain people, which is true, is by design, and is right.

that is precisely what he did.

and it also shows that putting investment strategies into the hands of
the average citizen can lead to them losing it all...

case in point, your misunderstanding of the basics of the article.

Other indices have done better. That said, a huge flow of new investments is not likely to do better than the Dow, because it will depress markets in itself.