Financial News

[Y2HH]

They're not accounted for in US anti-SS rhetoric that I'm referring to, where SS is treated as an investment vehicle comparable to IRA's instead of what it is.

 

I'm not opposed to re-examining or restructuring the system, I just don't want it changed into something it isn't.

 

^^ This.

 

And it's NOT a 401k system, so let's not make it that.

[Jenksismyhero]

^^ This.

 

And it's NOT a 401k system, so let's not make it that.

 

But you can't ignore the reality that in some sense it IS an investment into your future. It's not "security" as if it sits in a vault only if you need it.

[Jenksismyhero]

You again take into account the value of time. I call this the Dr. Evil concept of investing. Translation: A highly elaborate situation in which everything just goes according to plan.

 

Hypothetical: What if you die tomorrow and your daughter needs to start collecting this money for basic child support needs during this same recession? Ahhh...and therein lies the rub.

 

Now you're just being ridiculous about this. We can play any number of whatif scenarios to fit our arguments can't we?

 

Look, if you're at or near retirement age, and you've done ANY sort of thinking towards your investments, you know (and your advisor knows) that putting your money in risky instruments is beyond stupid. You switch your mutual fund investments into bonds or the like precisely because of the risk of losing a significant chunk to a drop in the market.

 

Over the long term, even if I lost a ton of money because of the recession, i'm going to make that money back over the long term, which is exactly the type of "security" investment a SS replacement would be: long term with low risk the closer you get to retirement.

[Balta1701]

Over the long term, even if I lost a ton of money because of the recession, i'm going to make that money back over the long term, which is exactly the type of "security" investment a SS replacement would be: long term with low risk the closer you get to retirement.

I dunno, something tells me that "government mandated investment decisions" isn't a concept that would go over too well or last too long in this country.

[StrangeSox]

But you can't ignore the reality that in some sense it IS an investment into your future. It's not "security" as if it sits in a vault only if you need it.

 

It's an investment the same way life insurance or collision insurance is an investment--not really an investment at all.

[StrangeSox]

Now you're just being ridiculous about this. We can play any number of whatif scenarios to fit our arguments can't we?

 

Look, if you're at or near retirement age, and you've done ANY sort of thinking towards your investments, you know (and your advisor knows) that putting your money in risky instruments is beyond stupid. You switch your mutual fund investments into bonds or the like precisely because of the risk of losing a significant chunk to a drop in the market.

 

Over the long term, even if I lost a ton of money because of the recession, i'm going to make that money back over the long term, which is exactly the type of "security" investment a SS replacement would be: long term with low risk the closer you get to retirement.

 

Even "safe" investments have lost a ton of value in this recession, and if you're at or past retirement age, you don't have the luxury of waiting around and hoping there's not another 'lost decade' to recover.

 

Hell, this past year, the bond fund in my IRA is the worst-performing fund. It's lost money while the rest are up about 20%.

[Jenksismyhero]

It's an investment the same way life insurance or collision insurance is an investment--not really an investment at all.

 

Do you contribute to SS with the expectation that you'll be paid the same amount in 50 years? Or more? Is there not a rate of return? Pretty sure by definition contributing money with a 2% rate of return is an investment.

 

Edit: obviously it's not a TRUE investment, but for all practical purposes that's what it is, just in a different form.

Edited December 21, 2010 by Jenksismybitch

[Jenksismyhero]

Even "safe" investments have lost a ton of value in this recession, and if you're at or past retirement age, you don't have the luxury of waiting around and hoping there's not another 'lost decade' to recover.

 

Hell, this past year, the bond fund in my IRA is the worst-performing fund. It's lost money while the rest are up about 20%.

 

I'm sure that if you were to take your SS contributions to date at a 2% rate of return, and compare it to your private investments you'd still be better off with the loss.

[Balta1701]

I'm sure that if you were to take your SS contributions to date at a 2% rate of return, and compare it to your private investments you'd still be better off with the loss.

 

Actually that depends a whole lot on whether or not you hit one of the major expansions. The blue line here is the one worth focusing on...that's the raw, inflation adjusted S&P 500.

 

 

Right now, in inflation adjusted terms, the S&P is sitting right around where it first hit in 1998, so over that 12 year period, you'd have had to substantially beat the market to come out ahead of that rate. However, if you put a dollar in at the bottom of the 1980 recession, it would have expanded massively.

 

Over a full lifetime, yes, the market has on average beaten bond returns, no one will dispute that, but over decadal timescales, it can hover or even drop.

 

Over 50 years, a 2% annual rate of return on money gets you a multiple of about 2.7.

[Y2HH]

I'm sure that if you were to take your SS contributions to date at a 2% rate of return, and compare it to your private investments you'd still be better off with the loss.

 

Tell that to the thousands that invested in Enron's 401k, or Worldcom's.

 

Or Madoff.

 

Or GM.

 

I can keep going.

 

Point is, in the face of those losses, those people would all GLADLY accept that safe 2% now, in hindsight.

[Jenksismyhero]

Tell that to the thousands that invested in Enron's 401k, or Worldcom's.

 

Or Madoff.

 

Or GM.

 

I can keep going.

 

Point is, in the face of those losses, those people would all GLADLY accept that safe 2% now, in hindsight.

 

Again, you're picking outliers.

[StrangeSox]

Do you contribute to SS with the expectation that you'll be paid the same amount in 50 years? Or more? Is there not a rate of return? Pretty sure by definition contributing money with a 2% rate of return is an investment.

 

Edit: obviously it's not a TRUE investment, but for all practical purposes that's what it is, just in a different form.

 

No, it really isn't. It's a social safety net for retirement and disability, not an investment. It's official name has "Insurance" right in the title, because it's an insurance system. There's no risk, other than the government going insolvent. That's not the same as an investment.

[StrangeSox]

I'm sure that if you were to take your SS contributions to date at a 2% rate of return, and compare it to your private investments you'd still be better off with the loss.

 

Maybe, but again that misses the reasons why Social Security is not an investment and not directly comparable to investment products since it is a social insurance program.

[StrangeSox]

Again, you're picking outliers.

 

Outliers?

 

Whose retirement accounts didn't drop dramatically in the last several years?

[Jenksismyhero]

Outliers?

 

Whose retirement accounts didn't drop dramatically in the last several years?

 

Based on fraud from unique situations like Enron/Worldcom/Madoff/etc?

 

 

[Balta1701]

Based on fraud from unique situations like Enron/Worldcom/Madoff/etc?

Some of us would call the entire financial system a fraud.

[Jenksismyhero]

Maybe, but again that misses the reasons why Social Security is not an investment and not directly comparable to investment products since it is a social insurance program.

 

I'm not saying their comparable, i'm just saying in effect, it is an investment.

 

And simply because it's zero risk doesn't mean it's not an investment. Buying a bond is zero risk (absent insolvency), but it's still investing money today for a greater return tomorrow.

[StrangeSox]

You're redefining investment here so you can squeeze in privatizing what is, by definition and operation, an insurance program. It is not like any other investment out there.

[StrangeSox]

I'm not saying their comparable, i'm just saying in effect, it is an investment.

 

And simply because it's zero risk doesn't mean it's not an investment. Buying a bond is zero risk (absent insolvency), but it's still investing money today for a greater return tomorrow.

 

Bonds are not zero risk, unless you're referring only to US Savings bonds or something. But then, you're not really privatizing anything, still just using secured government assets to hold the SS trustfund.

 

From this Fortune article:

Why is privatizing Social Security such a turkey? Because retirees shouldn't have to depend on the market's vagaries for survival money. More than half of married couples over 65 and 72% of singles get more than half their income from Social Security, according to the Social Security Administration. For 20% of 65-and-up couples and 41% of singles, Social Security is 90% or more of their income. That isn't projected to change.

 

Using personal accounts to replace Social Security's guaranteed benefit would subject people to two separate risks. First, there's investment risk: Most people have no idea how to invest well -- study after study shows that mutual fund buyers tend to buy high and sell low. But even if you manage to invest well, you run into the second risk, largely unrecognized, that interest rates will be low when you retire.

 

Sounds like a pretty terrible idea to introduce all of that risk into what is a social insurance program so that a small percentage might see better returns in an investment and the finance industry can make personal fortunes.

 

Privatizing it also ignores the death and disability aspects of SS, since you won't have built up enough most likely.

[NorthSideSox72]

Third and final Q3 GDP revision posted at 2.6% growth - just above the previous 2.5% reading. Price index gain was slightly lower though. Still seeing divergence of retail sales traffic (up) and price trends (down), which never lasts terribly long. One or the other will give.

 

[NorthSideSox72]

Also, existing home sales up 5.6% despite increasing paperwork due to recent mortgage issues. Up 3 of last 4 months, despite no new government incentives and mortgage rates that are actually rising a bit.

 

Earlier this week they reported new home sales up only slightly, but staying near their record bottom.

 

Foreclosures have been reinitiatied across the board, but new delinquencies continue to fall.

 

That is pretty much the ideal set of trends you want at this time, and for a while.

 

[southsider2k5]

Some of us would call the entire financial system a fraud.

 

And some of us would say the same thing about SSI.

[Balta1701]

And some of us would say the same thing about SSI.

SouthsideIrish?

[Balta1701]

Third and final Q3 GDP revision posted at 2.6% growth - just above the previous 2.5% reading. Price index gain was slightly lower though. Still seeing divergence of retail sales traffic (up) and price trends (down), which never lasts terribly long. One or the other will give.

He's overly pessimistic since inventory accumulation does tend to precede recovery, but this part of the data is worth noting.

The news stories are coming out on the Commerce Department's release of revised data on 3rd quarter GDP and it seems that almost everyone has missed the story. The headlines of the articles are telling us that GDP growth was revised up slightly from 2.5 percent to 2.6 percent. While that may sound like at least somewhat positive news a more careful review of the data shows the opposite.

 

While the rate of GDP growth was revised up, the rate of final demand growth was revised down. Final demand, which is GDP excluding inventory accumulations, grew at just a 0.9 percent annual rate in the 3rd quarter, the same as its growth rate in the second quarter. The reason that GDP growth was revised upward was a more rapid reported growth in inventories.

 

The reported rate of inventory accumulation in the 3rd quarter was $121.4 billion (in 2005 dollars), the fastest pace ever. This added more than 1.6 percentage points to the rate of GDP growth in the quarter.

 

It is very unlikely that this pace of inventory growth will be sustained. Suppose that in the 4th quarter the rate of accumulation falls back to the pace of the second quarter. This would mean that inventories would subtract 1.6 percentage points from the growth rate. If final demand growth is 2.5 percent in the quarter (higher than it has been in any quarter of the recovery so far), then GDP growth would be just 0.9 percent.

 

In short, because the upward revision to GDP growth was based on more rapid accumulation of inventories it should not be viewed as a positive for the economy's growth prospects.

[Cknolls]

http://www.propublica.org/article/the-subs...-their-own-firm