Futurecasting. How will the Social Security problem be solved?

[dullard]

Originally posted by: Legend
It would be hypocritical of him to predict the market like that.

He didn't predict the market. He was just warning that the historical times of big stock gains and big dividends are gone. He does tons of his work based on past results. In the past, we had much bigger dividends than we do now. Thus, he basically assumes in the long run we'll do as we did in the past (big stock gains) minus the drop in dividends. I forget exactly where this was stated (in an interview maybe?). And being the king of multiple diverse funds with rebalancing, he meant multiple diverse funds with rebalancing.

On a related note: Bernstein says diversification isn't really there any more. At least, not in ways it was in the past. Spreading your money around and rebalancing thus will give much less of an additional gain than it did just a few years back.

 

[Legend]

Originally posted by: dullard

Originally posted by: Legend
It would be hypocritical of him to predict the market like that.

He didn't predict the market. He was just warning that the historical times of big stock gains and big dividends are gone. He does tons of his work based on past results. In the past, we had much bigger dividends than we do now. Thus, he basically assumes in the long run we'll do as we did in the past (big stock gains) minus the drop in dividends. I forget exactly where this was stated (in an interview maybe?). And being the king of multiple diverse funds with rebalancing, he meant multiple diverse funds with rebalancing.

On a related note: Bernstein says diversification isn't really there any more. At least, not in ways it was in the past. Spreading your money around and rebalancing thus will give much less of an additional gain than it did just a few years back.

Decreased correlation makes sense as businesses are getting more global. I suppose I'll have to invest wisely in international funds to attempt to get less correlation. But I could see a lot of that being unavoidable. That is a good point.

However, nothing is definite, and if dividends are indefinitely reduced, I don't think historical returns had the advantage of tax shelters, which should boost returns for small-cap. Or were there tax shelters before 401k and IRAs?

 

[shortylickens]

Originally posted by: MonkeyK
copied from the last SS thread:
Social security is not a wealth accumulation tool, it is a risk management tool
Every time there is a thread on SS, it is compared to stocks and retirement accounts. Apples and Oranges. Learn what SS is before saying that it does not have good enough returns.
SS needs some change, no doubt about it. But until those proposing changes, understand what they are changing, I cannot take the suggestions seriously.
This post was written by a 37 year old man with two children under 3yrs old, and who, along with his wife max out their 401Ks and Roth IRAs. I am very financially responsible, and SS still has an important role in my financial plan.

I respect your viewpoint sir, but SS does not have any role in my financial plan. I am a 27 year-old and my plan is to be careful and take care of myself, since I know The Government Cant Do It. Every time they try its fouls up, especially for healthy white males. I know darn well my group is always going to see the least benefit from government programs. I'd just as soon invest that money on my own. I trust myself more than uncle sam. I've been smart enough to save 20% of my pay ever since graduating high-school. Its really not that hard. Once you get used to that income your lifestyle will adjust to match it.

I intend to keep doing that until the day I retire. Which, (the way things look now) we be around 70 or 75.
And if the apocolypse does come and my savings and investments turn into shite, then I know the government will be more concerned about keeping itself afloat to take care of me.

 

[theeedude]

It will be solved with higher taxes, unless we find someon dumb enough to lend us more money to pay for it. Seeing how other countries are going to also need to pay their retirees, unlikely.

 

[Legend]

Originally posted by: dullard

Originally posted by: Legend
It would be hypocritical of him to predict the market like that.

He didn't predict the market. He was just warning that the historical times of big stock gains and big dividends are gone. He does tons of his work based on past results. In the past, we had much bigger dividends than we do now. Thus, he basically assumes in the long run we'll do as we did in the past (big stock gains) minus the drop in dividends. I forget exactly where this was stated (in an interview maybe?). And being the king of multiple diverse funds with rebalancing, he meant multiple diverse funds with rebalancing.

On a related note: Bernstein says diversification isn't really there any more. At least, not in ways it was in the past. Spreading your money around and rebalancing thus will give much less of an additional gain than it did just a few years back.

I just finished reading "All About Asset Allocation" by Richard Ferri (2006), and it doesn't agree exactly with what you're saying. I'm not very experienced, so perhaps I'm missing something.

Specifically, about Dividends. On page 210, it says that the growth of dividends payments has been about 3 percent year, and it talks about how tax law changes are likely to increase dividends in the next decade.

I can't find anywhere where Berstein says that we can expect 7%. What I do recall him saying is that recently we've had higher than average stock returns, especially large cap, and that he expects it to level back down to about 8% returns for large US stocks, and 10% for small US stocks, but no guarantees. Richard Ferri echoes this on page 218.

I never claimed that I would get 12% from individual funds, but rather from a portfolio.

Also, there are uncorrelated funds out there, and correlation does change. For example, REITs followed the market for a while, but in the 1990s-NOW there's been periods of *negative* correlation, which I'm sure you know increases portolio returns a lot more.

 

[Legend]

Originally posted by: shortylickens

Originally posted by: MonkeyK
copied from the last SS thread:
Social security is not a wealth accumulation tool, it is a risk management tool
Every time there is a thread on SS, it is compared to stocks and retirement accounts. Apples and Oranges. Learn what SS is before saying that it does not have good enough returns.
SS needs some change, no doubt about it. But until those proposing changes, understand what they are changing, I cannot take the suggestions seriously.
This post was written by a 37 year old man with two children under 3yrs old, and who, along with his wife max out their 401Ks and Roth IRAs. I am very financially responsible, and SS still has an important role in my financial plan.

I respect your viewpoint sir, but SS does not have any role in my financial plan. I am a 27 year-old and my plan is to be careful and take care of myself, since I know The Government Cant Do It. Every time they try its fouls up, especially for healthy white males. I know darn well my group is always going to see the least benefit from government programs. I'd just as soon invest that money on my own. I trust myself more than uncle sam. I've been smart enough to save 20% of my pay ever since graduating high-school. Its really not that hard. Once you get used to that income your lifestyle will adjust to match it.

I intend to keep doing that until the day I retire. Which, (the way things look now) we be around 70 or 75.
And if the apocolypse does come and my savings and investments turn into shite, then I know the government will be more concerned about keeping itself afloat to take care of me.

Any reason why you'll continue investing? I've always thought by the time I reach the age of 40-45, my portfolio would be so large that any possible investment would be neglible.

 

[shortylickens]

Originally posted by: Legend
Any reason why you'll continue investing? I've always thought by the time I reach the age of 40-45, my portfolio would be so large that any possible investment would be neglible.

Mostly because of the "getting used to the lower income" factor. I just wont miss it. And since its realistic that I will retire at 70 or so, I may as well keep as much as possible.
Its also realistic that 1 million bucks wont buy me nearly as much in the year 2050. I'll need an aweful lot for a decent house and my continued expenses, especially medical.

I guess the answer to your question is: I save it so I dont spend it.

 

[Legend]

Originally posted by: shortylickens

Originally posted by: Legend
Any reason why you'll continue investing? I've always thought by the time I reach the age of 40-45, my portfolio would be so large that any possible investment would be neglible.

Mostly because of the "getting used to the lower income" factor. I just wont miss it. And since its realistic that I will retire at 70 or so, I may as well keep as much as possible.
Its also realistic that 1 million bucks wont buy me nearly as much in the year 2050. I'll need an aweful lot for a decent house and my continued expenses, especially medical.

I guess the answer to your question is: I save it so I dont spend it.

Your target is 1 million without considering inflation? And your beginning in your 20s? Either you are putting in very little annually, or I'd strongly suggest rechecking your investment plan. You'd have to invest entirely in bonds or money market to get those kinds of resutls.

http://www.bloomberg.com/analysis/calculators/retire.html#results

Using that calculator, with 6% interest (9%returns -3%inflation, VERY conservative and easy to obtain) in an IRA, putting in 4000 per year from age 20 to 70, you'd have $1.2 million in today's money.

If you look at that table generated, you'd see that investing 4,000 per year after age 45 wouldn't really do anything because it would be so small compared to the interest earned.

Maybe I'm misunderstanding something.

 

[shortylickens]

No, my target is NOT one million. I said one million because thats what all the so-called experts want me to save, but I know better. It'll probably take a lot more for me to retire.

What you are misunderstanding is simple money management. I am not especially concerned about interest at any point in my life. I am concerned about pissing away cash simply because I have it. If I can live in a decent house in a decent neighborhood throughout my life I wont fell the need to spend simply cuz I got it. Thats one reason I have constantly been saving 20% and will continue to do so until I officially declare myself retired and want to spend money on the goodies of life. And even then I wont flush ALL my money down the toilet. I'll get the dream house for summer and the neat little cottage for winter and THEN live off the interest of the healthy chunk left. Again keeping in mind that medical expenses and maybe travel will still be costly.

If, god forbid, I actually manage to have too much money I can leave something besides the life insurance to my offspring, (which I dont plan on having anyway). Or I could be generous and leave it to the VA or something similar. Something tells me that by the time I die those folks will need all the help they can get.

 

[Legend]

Originally posted by: shortylickens
What you are misunderstanding is simple money management. I am not especially concerned about interest at any point in my life. I am concerned about pissing away cash simply because I have it. If I can live in a decent house in a decent neighborhood throughout my life I wont fell the need to spend simply cuz I got it. Thats one reason I have constantly been saving 20% and will continue to do so until I officially declare myself retired and want to spend money on the goodies of life. And even then I wont flush ALL my money down the toilet. I'll get the dream house for summer and the neat little cottage for winter and THEN live off the interest of the healthy chunk left. Again keeping in mind that medical expenses and maybe travel will still be costly.

So you have a fear that you'll tap into your retirement fund if you begin spending 100% of your income at a certain point.

You're not concerned about interest? With a diversified portfolio you could be making 12% annualized average over the next 40 years. I'm not sure what you're doing now, but I'm sure the difference would be at least several hundred thousand dollars if not millions. You could do so much with that. Retire easy in a nice house, travel around the world, give some to family friends, create scholarship funds, donate it, etc.

At your age you should have your money index funds like:

International large cap
International small cap
US small cap
US large cap
REITs
and a small ammount in fixed income

Pleast don't tell me all of your money is in fixed income (like bonds) or money market. I remember coming across someone recently that was actually massing up hundreds of thousands in a bank account with like .5% interest. You are LOSING money doing this.

 

[BucsMAN3K]

The bigger the nation gets, the more jobs there are, the more loans there are, the more money that is pressed, the harder it will be for the government to enforce social reform. Completely cutting the defense budget will not do as much as people expect, maybe less than a hundred dollars for qualified persons. High taxes might work for a lower population, socialist country, but it would greatly hinder growth and wouldn't come to fruition in a capitalist country.

Hopefully I'm wrong, but I think relying on SS is inevitably a lost cause, regardless of what the government does. In light of this I think it would be wise to encourage people to save and invest their money on their own will.

 

[shortylickens]

No, No, No, No.

I took a bath (as they say) in the mutual fund game. By the time I was 19 I had lost 99% of my 5 grand. That was being saved since I was a little laddie. But I didnt know any better and the supposed "investment counciler" told me to put it in this, that and the other.

The bank account is just where I keep a little liquid to do stuff with.
I have a big chunk in the 401K from my company, which gets a 50% match for the dollars I put in.
When I was in the Navy I got into the thrift savings plan, which had a dollar-for-dollar match up to whatever I wanted. (True it didnt start at 100% matching, but eventually it got up there. I still went with 20% of my pay though.)
Was able to roll over a decent nest egg into my current employers plan.

Invested in a few other minor things, but I'll be honest and say I dont entirely understand them, other than they are a heck of a lot more reliable than Mutual Funds. I also acknowledge I am not nearly smart enough for stocks.

The 50% match from my company is free money and it makes me feel a little smarter than all the other dummies who get a new sports car every 3 years.
Why guys under 30 feel compelled to throw it away is something I still havent grasped.
I guess they should have chipped paint for 3 years like me.

 

[Legend]

Originally posted by: shortylickens
Invested in a few other minor things, but I'll be honest and say I dont entirely understand them, other than they are a heck of a lot more reliable than Mutual Funds. I also acknowledge I am not nearly smart enough for stocks.

It's really not difficult.

All the Moden Portofolio theory says is to diversify your assets into uncorrelated parts of the market. There's size: Large, Mid, Small. There's style: Growth (companies growing quickly, Google), Value (not much growth, but dividends are higher, Kmart), and Equity (blend of value/growth).

Put your money in low cost index funds. Index means it's just following a particular market size/style. A company called Vanguard has some very low cost index funds.

An example:

15% International large cap
15% International small cap
20% US small cap
20% US large cap
10% REITs
20% Fixed income

Each year, you rebalance your assets so that you have the original percentages in each asset allocation. Or if there's a huge change, say 5%, then rebalance.

This effectively allows you buy low and sell high. There's very detailed mathematical models showing how this increases returns and lowers risk. The people that designed it won the Nobel Prize in 1990.

Do you remember all that fuss about tech stocks in the late 90s? If you used MPT, you would have made about 12% average annualized between 1995-now.


Just pick up a book and read it. It'll make a huge difference for just 10-20 hours of careful reading.

http://www.amazon.com/exec/obidos/tg/detail/-/0071429581?v=glance
http://www.amazon.com/exec/obidos/tg/detail/-/0071362363?v=glance



That's it. That's all you do. The people that push for active management and daily stock trading eventually lose. There may be a very small percentage of people that make money that way, but no one can predict the market. All of those financial magazines are full of sh1t. If they could predict the market, they'd be billionairs and have absolutely no need to sell you a magazine.

 

[Officerdown]

n00bs

 

[the Chase]

I would guess that at least 50% of the people here would agree that SS is a failed government program because of our voted in polititians continue to steal from us through the SS fund. (I use the word steal because they don't call it a tax and not many people know that they are "borrowing" this money. And they have no intention of making good on the IOU's in the fund). What we have to do is convince all of the 18-40 year olds to entirely give up what they have coming from SS in the future. Just totally write it off. Then pay the remaining living SS reciepiants the entire balance of the fund as it stands right now on a % basis of what they have coming to them. At least the 18-40 year olds can feel content that they will not be ripped off any more than they already have. The problem is trying to sell this idea to the American people who simply don't understand that our government will start balking at paying them their SS benifits.(Be it through delayed retirement, less benifits, no benifits above a certain income level, etc.) Admit the failure and deal with it head-on.

 

[Deleted member 4644]

Mass execution.

 

[piasabird]

The retirement age is not 65 for future candidates to receive SS. The retirement age has already been raised, in case you do not know that. This means that if you happen to be a genetic throw-back and arent blessed with long life, that you will just die on the job. It happens all the time. People that live longer are a drain on society.

I see visions of Solient Green.

 

[shortylickens]

Originally posted by: the Chase
Admit the failure and deal with it head-on.

I dont think thats been our governments strength lately. Especially not Congress.

 

[Abraxas]

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

My solution, restore tax rates on the top earners to 1944 levels. Make the people always pitching at least have to provide lube.

 

[piasabird]

If the Government just took $5,000.00 and invested it for you from the day you were born they would save a lot of money.

There have been studies on investment patterns and most workers do not make enough money or cant manage their money well enough to invest in an IRA and have enough money to retire on. IRA's only really benefit those who are in the upper end of the income ranges. I watched a show on this and it was quite interesting.

 

[techs]

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

My solution, restore tax rates on the top earners to 1944 levels. Make the people always pitching at least have to provide lube.

The real flaw in this thinking has been repeated by others in this thread. If you invest 4000 at 3 percent inflation (he really means interest) you will have 2 million in todays money.
NO you twit. You will have 4000 in todays money. If your money grows at the rate of inflation you don't have any more money in todays money. You stay EVEN. Yes, you have more dollars but they are able to buy the same amount as they did when you invested them years ago.
And there are a bunch of other twits who don't understand that your actual return on investment every year is not the percent interest you earn. IT'S THE INTEREST YOU EARN MINUS THE COST OF LIVING INCREASE, OTHERWISE KNOWN AS INFLATION.
Did your investment grow 5 percent last year? Well you only made about 1 percent since inflation was about 4 percent.
I am sick and tired of hearing people throw out numbers like 6-7-8-or even 10 percent earnings on investment. Because in years people get 10 percent earnings, inflation most likely was high and they may have only earned 3 percent.

And people who are stupid enought to start quoting 'historical growth' in things like the stock market are just too dumb for words. Trying to compare growth in the the 1960's and 1970's versus 1990's and early 2000 is like comparing apples and oranges.
AND lets not forget that we have seen 10 percent inflation per year in America. And those years the market goes up maybe 13 percent. But when people talk about historical return they see 13 percent growth compared to todays 4 percent inflation, not the 10 percent inflation the year the stocks went up 13 percent.

 

[zendari]

LOL there is so much wrong with techs post above.

 

[techs]

Originally posted by: zendari
LOL there is so much wrong with techs post above.

Nope. You just need to get through the twelfth grade and read some books.

 

[Aisengard]

So is this Modern Portfolio theory widely used? Has it been experimentally proven? I just want to know to see if I should start investing.

 

[Legend]

Originally posted by: Abraxas

Starting at age 20, investing $4000/yr with 3% inflation, you'll have over 2 million dollars in today's money.

Ah yes, because most 20 year olds who are attempting to work their way through college or just out of high school and only just beginning to work full time routinely have 4000$ per year just lying arounf that they can invest.

I'm a college student. I did it by co-oping. I'm doing it again this summer by working extra hours. If they don't make the effort, then that's their problem.