On Fri, 17 Dec 2004 17:11:26 -0500, Erik Reuter <[EMAIL PROTECTED]> wrote: > On Fri, Dec 17, 2004 at 03:48:13PM -0600, Dan Minette wrote: > > > > If SS were privatized, limiting investments to fairly conservative > > funds doesn't seem like a bad idea. IIRC, a general investment in an > > S&P fund has outperformed most other funds over the last 10 years. > > That's the right general idea, but not general enough. It should be > limited to very broad-based index funds. The S&P500 is only large > companies and does not include REITs. The Wilshire 5000 would be a much > better option. And the foreign offering should be based on as broad an > index as possible -- the MSCI EAFE is not really broad enough, in my > opinion. The bonds funds should also be index funds covering just about > all types of bonds. There should be at least an intermediate term bond > index fund, a very short term bond index fund, and a foreign bond index > fund.
One question first to see if I'm on the right page: if SS was privatized and hooked into the stock market, that would mean that my SS tax money would go into an account in my name and be invested (somehow) in the market, and that the government couldn't use that money to pay out benefits to other people (as is the case now)? Is that correct? If so, that begs the question: what about the people receiving benefits currently under the old plan? Are they "grandfathered in"? If so, where does the money come from to pay for them? I'm guessing "new taxes"? Also, what about people who've been paying into the old system for 10, 20, or 30+ years - they've paid a lot into the old system, money that is, technically, theirs, I believe. I suspect the answer is "tough luck"? If that's all the case, it seems to me that initially a lot of money will flow into the stock/bond markets, and very little will flow out until the people that actually paid into this new private system start retiring and pulling money out. The sheer amount of money that would be pumped into the market at the start makes me wonder how the market could handle it. If the privatization works as I think, that would mean essentially around $526 billion (amount collected in SS taxes in 2002) would start to flow into the stock/bond market *yearly*. (Over time, that would be effectively reduced by people pulling money out, but that would likely take years to become a large percentage) >From what I've read, managed mutual funds like Fidelity's Magellan become incredibly unwieldy once they get large. Magellan is currently at ~$63B and hit ~$104B a few years back and used to be the largest. (The Vanguard 500 index is at $81B, and the Wilshire 5000 index fund (WFIVX) is at ~$110B), That $63B, $81B, or $110B is the total net assets for the fund. The thought of some government flunky running a fund that gets that much money (or double or triple) to invest *every year* is frightening. It would mean incredible, almost unstoppable power to move the market not just on individual stocks, but on broad sectors or even the market as a whole. Having the SS investment money tied to a big, broad index is less scary, but when we're talking $500B* to invest per year, that's a lot of money to be pumped into virtually every stock on the market, every year. (Of course by/before 2018, things are going to likely start drying up, but I'm thinking near-term behavior). With that much money potentially being pumped into broad stock indices, it seems like even the bad or unworthy companies will benefit because 1) index funds don't make many judgements about a stock's quality and 2) there's not enough "worthy" stocks to handle it all. So it seems to me that a switch to privatization will likely inflate the entire stock market drastically in the near term- potentially an extremely good time to have outside money invested in the market. -bryon * I don't know what % of that $526B would likely be put into stocks vs bonds, but I'll gloss over that factor, since even a 50-50 split would be a huge pump into the stock market. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
