A Letter to Barack Obama

Dear Senator Obama,

Congratulations on your historic nomination for the Presidency, and thank you for last night's speech. We enjoyed it as well as the fireworks. Though we represent a variety of political viewpoints and both agree and disagree with your positions, there is one tired piece of Democratic rhetoric you're using that we universally believe you should retire. The good news is: We think you agree with us.

About 1,100 words into your speech, while attacking John McCain, you asked "How else could he offer...a plan that would privatize Social Security and gamble your retirement?" That added to a statement you made at Dartmouth College in September 2007 that demanded we "reject things that will...put people's retirement at the whim of the stock market."

While we can all agree or disagree on the merits of giving Americans personal retirement accounts instead of or in addition to Social Security savings, what needs to stop are the constant references to the stock market as a "gamble" and investing as "gambling."

Because it's not.

Warren Buffett, a supporter of yours, got to be one of the richest people in the world by making prudent, long-term investments in excellent companies such as Coca-Cola (NYSE: KO  ) , American Express (NYSE: AXP  ) , and Costco (Nasdaq: COST  ) . If you asked him how he did, he may reply humbly that he was lucky, but he most certainly would not say that he was gambling. Instead, he focused on finding honest management teams, strong brands, and competitive advantages and then buying shares in companies possessing those traits at a discount to his calculated fair value (done by determining the present value of all future cash flows these firms would generate).

We know you went to law school, but this is not rocket science. Any American can be a successful investor provided he or she has the time and temperament, and our mission here at The Motley Fool is to help more Americans become smart investors.

But it's true that not all Americans have the time and temperament. For them, the best solution is index funds. This is still investing, but again, it is not gambling. A low-cost choice such as Vanguard Total Market (FUND: VTSMX  ) will currently provide an investor with exposure to more than 3,500 companies, including stalwarts such as General Electric (NYSE: GE  ) , staples such as Procter & Gamble (NYSE: PG  ) , and new economy wonders such as Google (Nasdaq: GOOG  ) . It also provides global diversification, a 2% annual dividend yield, and the promise (if history is to be any guide) of 6% to 10% annual long-term returns.

Putting money behind companies of this quality is not gambling. It's actually the only prudent thing to do if one hopes that his or her retirement savings will beat the rate of inflation and retain their purchasing power for when they're needed.

The fact is people look up to you and you inspire people. If you continue to refer to investing as gambling, then you threaten to scare millions of Americans away from the stock market when in fact all Americans who have the means should be saving and investing regularly in superior companies.

But again, we think you know this. According to your campaign literature, you would retain the reduced tax rates on capital gains and dividends for households earnings less than $250,000 per year and mandate participation in 401(k) plans through employers. If you truly thought that investing is gambling, then we don't think you would pursue any policies that encourage folks to put money to work in the stock market.

So please retire that tired line before you move forward in your campaign. Oh, and also stop making people so scared of China. Americans probably need to be investing there too.

We look forward to your response.

Foolish best wishes,
Tim Hanson, Senior Analyst

Senior Advisor Tim Hanson does not own shares of any of the companies mentioned. Coca-Cola and American Express Company are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Costco Wholesale is a Motley Fool Stock Advisor pick. The Fool owns shares of American Express Company. Try any of our Foolish newsletters today, free for 30 days.


Read/Post Comments (49) | Recommend This Article (70)

Comments from our Foolish Readers

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  • Report this Comment On August 29, 2008, at 3:06 PM, bricks79 wrote:

    China is not anywhere near a free market, nor is Russia. Caveat emptor!

  • Report this Comment On August 29, 2008, at 3:17 PM, wisefoolishwife wrote:

    Great article Tim. Thanks for clarifying that wise investment in solid companies is NOT the same as gambling and should be encouraged.

  • Report this Comment On August 29, 2008, at 3:39 PM, jmhendrix69 wrote:

    Terrible article. Barack's point is that you don't want some special interest tool investing individuals personal retirement accounts. As the Republicans have already demonstrated for the last eight years, they are interested in themselves. I don't want just any old tool investing for me. And by the way, Warren won't be the one investing for you.

  • Report this Comment On August 29, 2008, at 3:45 PM, dksigg wrote:

    I disagree also. Obama isn't dissing the market in general but is correctly opposed to leaving what is often a person's only retirement resource to the investment world, the humans that run it, and the inherent and significant risk of it. If you have other retirement resources, extra assets over and above SS, that is already "privatized".

  • Report this Comment On August 29, 2008, at 3:58 PM, vmred wrote:

    I respectfully disagree. As I am close to retirement I am grateful that there is a part of my income that is not tied to this lousy market, a piece, that, granted, I cannot live on totally, but I can totally count on it and also count on it going up with the cost of living. Of course, some will argue that one can, with discipline (and know-how) put their money in annuities, and other things that will be almost as safe as SS but I don't buy it. There are too many folks who will not have the discipline and will indeed gamble away their only nest egg.

  • Report this Comment On August 29, 2008, at 4:35 PM, TMFMmbop wrote:

    I think the people who disagree are missing the point here. A sound retirement strategy obviously depends on your timeline, and people close to the market should keep money in vehicles that protect the principal, such as TIPS.

    Similarly, a young person would be daft to put all of their faith in the SS system.

    Thus, most people need the stock market for at least a portion of their retirement savings. If they're constantly told by political leaders that such a strategy is akin to gambling, then they will put stash their savings in underperforming vehicles and be unable to cope with the ravages of inflation.

    Tim

  • Report this Comment On August 29, 2008, at 5:20 PM, mas113m wrote:

    the greed of old people and the democrats' fear that privatized social security may actually mean that less people are dependent on the gov't have already doomed any chance of reform. nice article though Tim.

    -mason

  • Report this Comment On August 30, 2008, at 4:52 PM, sergioh12 wrote:

    Great Article.

    What do you call the "scheme" that takes money from new "investors" to pay 'older' "investors"? Oh yes, ... the current Social Security system.

  • Report this Comment On August 31, 2008, at 3:32 PM, solarpowerman wrote:

    Typical republican slanted article!

    Not all investors can be as astute as Warren Buffet. Have we ever heard of people that have lost everything in the market? The Social Security System does pay the "old" investor by using the "new" investors money. The government also, uses the "old" investors money for many things that the "new" investor reaped in his or her childhood.

  • Report this Comment On September 02, 2008, at 1:22 AM, TMFAleph1 wrote:

    solarpowerman,

    The fact that you may have heard of people who "lost everything in the market" doesn't invalidate Tim's argument. It would be nigh on impossible to lose everything by dollar cost averaging into an index fund, which I believe Tim suppors for many (if not most) people that are beginning to invest for their retirement.

    Alex Dumortier (XMFMarathonMan)

  • Report this Comment On September 02, 2008, at 11:32 AM, Kangman wrote:

    Quick question for everyone.

    If we were forced to take the money out of our checks now like the current system, but didn't let the government have there tentacles on it, could we put the money into anything? A bank account that gets 3% per year would be better than what the system gets now. Those who are not confident in there investing skills could buy government bonds for that matter. Would we rather have corrupt politicians squandering away our money?

  • Report this Comment On September 02, 2008, at 12:38 PM, TMFKopp wrote:

    Great article Tim. To the people that disagree, you need to step back and separate the idea of privatizing social security and thinking of the stock market as a casino. I think Tim did this very well in the article but some still seemed to miss the point. You can still hate the idea of privatizing social security even if the stock market isn't a gamble, but the bottom line is that the stock market (used properly) isn't a gamble.

  • Report this Comment On September 02, 2008, at 2:39 PM, done4nau wrote:

    Tim,

    You are probably a wise, educated investor. For you and others like you privatizing SS would be a fine thing; you know when to hold 'em and when to run like a scalded cat.

    I was out of the country in 2000 and my broker didn't do what I asked her to. I lost $400,000 BEFORE 9/11 because she did nothing. I trusted her. What was left was slowly building up until 2008-- I had almost enough to live on until I was BUSHED again!

    We who are not sure of ourselves in finance are the ones who always get whacked in any kind of economy shift in the stock market and on the street market. WE need protection from you money-savvy people who feel that people who are less adept at money moving somehow DESERVE to be fleeced by you all. I think that Webster's dictionary needs a further definition under con man --American financial broker.

    I lost my trust in brokers and finance people eight years ago, and would cheerfully hide my money in a mattress--but I can't afford to get out with so little.

    I'm just sorry that the rest of you have so much of my hard earned money and I have no redress.

    We the working poor need some money we can count on to live quietly in the shadow.

    You all have earned money by raising the price of oil, destroying the price of our houses, kept wages low while you CEO types earn billions and now you want to con us out of our very megre social security.

    Maybe that's what Barack Obama meant-- but he's lawyer polite.

  • Report this Comment On September 02, 2008, at 3:07 PM, jmweese wrote:

    Tim, great article. I just commented to someone today that, at 29, Social Security provides an excellent investment vehicle. I invest for 40 years, then the government gives me 75% of my original investment (by the Social Security Administration's own admission). Nice...a 25% loss after 40 years and that does not account for inflation! Even investing on my own, I am only down 7% in my actively managed ROTH IRA. I personally would like to see a nationwide investment test much like the CPA exam where people pay to take it and then are allowed to become exempt from any future social security taxes. The catch, they surrender those funds already "invested" in Social Security. I believe in 40 years of investing an extra 7.5% on my own, I could more than make up for any lost Social Security (invested or yet to receive). Personally, I get rather sick of those 45 and older telling me things will be okay with Social Security in the future and I will get my full benefits...errr...wrong! Just do the math...

  • Report this Comment On September 02, 2008, at 4:26 PM, tedwards456 wrote:

    Good points, but I have to ask Obama to keep it up.. While I agree there is some politicking going on when he refers to 'gambling', I don't want to see Social Security done away with. People should invest in the stock market as well though.. If it was all in the market, one would be putting an enormous amount of faith in the competence of several administrations over their LIFETIME. I'm not comfortable with that, though I will admit I'd like to be investing even more in the market, on the side, than I am in Social Security. That's my goal and I'm working towards it.

    Just another 2 cents..

  • Report this Comment On September 02, 2008, at 8:11 PM, mec841 wrote:

    People should be afraid of China and I have to believe that folks can make money while at the same time destroying China and its economy. Its a ruthless dictatorship and the only way to drag it into a century of hope is to kick it in the teeth.

    Screw China. They are willing to take a 1/3 of their population and condemn them to poverty just to be able to compete with the other powers by keeping wages obscenely low. American firms should not be rewarded for helping that.

    The reason the US is superior is that it is about providing opportunities for all of its citizens-and Social Security is a part of that, as is investing.

    I lived in Asia for 10 years, its not all the glittering beauty of Hong Kong-there are some places where people are struggling. If China were not Communist, it would not be near as bad.

  • Report this Comment On September 02, 2008, at 10:01 PM, 50Ozi wrote:

    How about: Investing in companies is like investing in one's education or one's child's education - you support something you believe in and you hope for a fruitful harvest. The stock market is like a particular crop, like community supported agriculture. We invest in our utilities, natural resources, et al.

  • Report this Comment On September 02, 2008, at 11:20 PM, Sinfest wrote:

    I think the sentiment of this article is dangerously naive.

    Yes, wise investors will be rewarded, but to assume that anything close to a majority of the American populace is skilled at investing is a silly assumption to make.

    The bottom line is that investing IS gambling to the vast majority of people. Too many people can't even read a balance sheet for encouragement of investing to be a government policy.

  • Report this Comment On September 02, 2008, at 11:22 PM, Sinfest wrote:

    I forgot to add that I think investing should only be encouraged for teens and people in their 20s and 30s. At least they'll live long enough to ride out several booms and busts and learn along the way.

  • Report this Comment On September 03, 2008, at 12:16 AM, none0such wrote:

    Tim, as I remember from high school, SS was created to supplement retirement, provide some relief for the disabled and act as a cushion during times of economic troubles. It was never intended to be what it has become: the single largest income source for (insert confrontational percentage here) of retired Americans. The crux of your argument is that investing is not gambling; this is a truism that no one reading this article would disagree with. However, in my limited experience as an investor, I have witnessed gambling as pseudo-investment - as a CS undergraduate busily programming on campus I distinctly recall a fellow student at the sinc site lean over to his friend and say, "I just made $500" in a tone that implied the stock market was a panacea for his economic woes. This was Feburary, 2000. I paused in thought about my brother's warning, "The dotcom bubble is going to burst one day." It seemed everyone I knew was aware of this statement but few felt it prudent to sit-out and miss this opportunity. Not even my brother, who had been 'retired' for all of 2 years a multimillionaire, heeded his own advice. "Don't you think you should be more diversified?" is what our father had told him. I think that question applies here: "Don't you think SS should be about diversification?" Granted, SS is inefficient - the dead hand of government never is efficient. Granted, SS employees don't even participate in SS (they place their SS contributions in an escrow account) which speaks volumes for changing SS. But I can't ignore human nature. The fact is that some people do use the stock market to invest and some people do use it to gamble, uh... specu ... er ... follow momentum swings. Again from basic high school, the Federalist #51, "If men were angels, no government would be necessary." I believe that would include SS. Casting a government social program to the private sector is like creating a quasi-government-backed mortgage lender, and we all know where that got us in a very short time. Your confidence in the stock market is justifiable; your justification that the stock market should be for all is non sequitur.

  • Report this Comment On September 03, 2008, at 11:35 AM, gainmheach wrote:

    Skewed by the examples: the authors write "Putting money behind companies of this quality is not gambling. It's actually the only prudent thing to do if one hopes that his or her retirement savings will beat the rate of inflation and retain their purchasing power for when they're needed." Yes, that's likely true for the companies they cite in the article. But as long as we cannot trust a significant number of CEOs and CFOs to tell the unvarnished whole truth in quarterly reports and other public comments on their companies, the element of "gambling" is indeed an accurate description. Democrats are interested in reducing corporate corruption and the global impact of unrestrained corporate greed. Obama is right to use terminology such as "gambling" in the current climate. When I've lost money on a stock, most often it happened because I acted on the only information available from the company, and it turned out to be misleading or just outright prevarication. When corporate officers clean up their act (more likely to happen with Obama in the White House than with McCain), the descriptions might change. But for now, Obama's word choice is, unfortunately, all too justified.

  • Report this Comment On September 03, 2008, at 1:44 PM, scottdx wrote:

    Hendrix,

    You blast the article based on the fact that you don't want, "some old tool" managing your money. WHO do you think is managing it NOW??? AN OLD TOOL called the FED. Govt. Who has a HORRID track record with financial management. I would at least like to choose which "Old Tool" manages my money.

  • Report this Comment On September 03, 2008, at 2:04 PM, MisterRogers wrote:

    Are there corrupt companies out there? Sure. I've lost money investing in them. Will an Obama presidency change anything? Not likely. When Enron hit, the Europeans sneered and said, "that would never happen in Europe." Then, I lost $4k on the "Dutch Enron", which misreported a few hundred million Euros.

    I smarted. Then, I got smart. I'm much more diversified today. It could happen again, but it won't impact me as much. If every company were corrupt, we would have bigger things to worry about than losing money on the stock market. Thankfully, that's not the case. By diversifying, we can invest in enough good companies to more than make up for the Enrons (regardless of who is president.)

    Are there idiots out there who would lose their savings on the stock market? Sure. They're the same folks who blow their Social Security checks on lottery tickets, bingo parlors, and charter trips to Vegas. Okay, I'm being one-sided. Innocent hard-working people do lose money on the stock market, but on the long haul, they're the exception to the rule.

    A mentor of mine, who used to be the CEO of a grocery retail chain, told me this story: One day, a band of gypsies entered a store, overwhelmed a cashier, and stole all the money. Ever since, the company handbook had a specific "what to do when you're surrounded by gypsies" policy.

    The point is, we cannot and should not legislate for every possible contingency. The idea that Social Security is a hedge against corrupt companies or a nanny for incapable investors just invites the government to start scheduling our yearly dental visits so we don't all get cavities. When Social Security was invented, the life expectency in the US was 65. It wasn't a "retirement" fund; it was a meal ticket for those who defied death. Our notion of entitlement was born out of our failure to keep the qualifying age for Social Security in synch with a rising life expectency.

    Those who would paint Tim as a savvy investor bent on fleecing the common man for his own gain... uh, the whole point of Motley Fool is that Tim and his friends share their savvy with us, the common folk. Thank you, Tim. You and your gang have transformed my investment strategy. I'm 28 years old, so I'll never see a dime from the government. The Motley Fool is my Social Security.

    I've heard many people refer to the stock market as "legalized gambling". Tim's rebuttal is poignant. Let's not forget that the president isn't in charge of retirement any more than the CEO of the company is in charge of what I eat for lunch on Tuesdays. But if the CEO gives a speech denouncing salmon, you can bet it won't be served in the cafeteria.

    I'll go one step further than Tim. He said investing in the stock market is not gambling. I say investing in the stock market is the exact opposite of gambling. When you play a table game at the casino, you tend to win in the short term, but lose over the long term. When you invest in the stock market, you tend to lose in the short term, but win over the long term. That's a piece of rhetoric that's well worth repeating.

  • Report this Comment On September 03, 2008, at 3:49 PM, Niteski wrote:

    Every year the chairman of the Federal Reserve goes to the Senate and House Finance Comittee for their bi-annual report. Every year Volcker, Greenspan and now Bernacke has said, "something must be done about Social Security and Medicare's unfunded liability". Every year it gets larger and we lose more of the time value of money. Every year nothing is done. So the point is a moot one whether it should stay the same and collapse or be fully or partially privitized. Here we are again, with 3 agents of change from the Senate, a do nothing group of elected officials with an approval rating half that of the President. That's why the rest of the world laughs at us. The clock is ticking.................. I will admit that at least one has crossed the aisle in an attempt to get some things done.

  • Report this Comment On September 03, 2008, at 4:52 PM, martinfrosa wrote:

    The country of Chile privatized their social security system years ago. If they can do it, we can do it. Dollar cost averaging over long periods of time is not gambling, it is investing, and it works! I know because I have done it for over 20 years. I would much rather control my own destiny than leave it to the dolts in Washington who can cut my SS benefits anytime, decrease COLAs, increase taxes on SS, etc.

  • Report this Comment On September 04, 2008, at 10:41 AM, zorro1013 wrote:

    Sorry, but many of our citizens are not patient, informed investors like Warren Buffet. In my 70 years I've seen plenty of "smart" investors taken by artful sales pitches to the tune of hundred's of millions. Social Security is not an investment fund. Social Security cannot be provided by allowing individuals to attempt to select wise, solid investments. There are too many opportunities for major losses.

  • Report this Comment On September 04, 2008, at 11:49 AM, 2scooper wrote:

    I disagree with the author. If suddenly our social security contributions were to flood the markets, then "quality companies" stock values would become over priced as investors struggle to buy broker recommended securities. The market could not sustain that money without huge and frequent corrections; think real estate. The SS investor would be the first to lose and the Buffets would benefit.

    The biggest winners in all of this would be the institutional investors and banks through commissions and management fees. We have seen how well they treat their small investors and handle our money.

    Also, government should not be operated nor viewed as a for profit business. It supplies essential services to those who require them as well as provide support and protection for a viable and sustainable economy. The republicans consistently loot the treasury; Nixon, Reagan, Bush I and II and force the dems into recovery mode through tax hikes and fiscal discipline.

    You'd never know if you listen to the rhetoric

  • Report this Comment On September 04, 2008, at 12:20 PM, XMFBigBlue wrote:

    Investing IS gambling! The question is whether you're the house or the Vegas vacationer looking to have some kicks. If you're the house, the odds are in your favor and on average gambling is a winning proposition. But, in the words of Matt Damon, "If you can't spot the sucker in your first half hour at the table, then you ARE the sucker." There's a ton of empirical evidence that shows that on average most investors are suckers (read underperform the market ).

    I'd argue that to label investing as gambling is to acknowledge the inherent risk of investing. What the good investors do is tilt the odds in their favor, essentially finding ways to consistently beat the house. If I could see the dealer's cards without her/him seeing mine, I'd still be gambling, but it'd be a lot more fun (and profitable).

    The larger issue is the stability of the three legged stool that made/makes up an individual's retirement income - social security, pensions and personal savings.

    What do we know about these three pillars of retirement security? Pensions-once the foundation of a retiree's income have practically vanished. Social security - by any account, is on shaky ground. Personal savings - a balance of $164k (the median for employees in their 50's making 60-80k) will likely not be enough to completely fund your retirement.

    So, with personal savings coming up short and pensions falling by the wayside, the state of social security becomes increasingly important.

    To me the argument boils down to relying on something risky to support you during your golden years or something guaranteed. Personally, I would stop short of likening my blackjack skills to my stock selection prowess, but both involve risk. Social security has been risk-free (excl. inflation risk) for beneficiaries. Once you hit 65 or 67, you were guaranteed a check for $x per month.

    Taking that guarantee away - no matter what the form - is an important decision and one that should not be taken lightly. At the least, the word "gambling" reinforces that investing involves risk (hopefully calculated and informed).

    Obama is clearly playing on the emotions of the American public by using the word "gamble". But, I think his use of the word is more a discussion of semantics and word-choice than being factually incorrect. There has been some tugging of heart strings by the other side of the aisle as well. Does anyone have a count on the POW references two days into the Republican convention?

  • Report this Comment On September 04, 2008, at 12:50 PM, diversityforme wrote:

    The government should not be meddling and 'saving people from themselves' by forcing them to save for retirement. If I could get out of Social Security and be completely responsible for my own financial future, I would this very day.

    Secondly, I do not trust government, Democrat or Republican, to keep their hands off of my money anytime they can lay hands on it. Social Security has been pillaged because the government keeps pulling money out of it to use for other things.

    I highly support personal responsibility in all things. I trust myself to have a more vested interest in my future than any third party, especially any goverment.

  • Report this Comment On September 04, 2008, at 1:17 PM, curiousbean wrote:

    Disagree! We only have one Warren Buffet in the world. Tim, I’m sure you are one of well-to-do investment professionals. But most people are not spending enough time or energy or simply are not interested or don't have the displine in educating themselves on investment. Therefore they might not savvy enough to make right investment decisions.

  • Report this Comment On September 04, 2008, at 3:32 PM, BigNosedTexan wrote:

    The ignorance of the dissenters of this article is scary.

    I would much rather have my SS monies and the compnay matching SS monies under my control than an institution that is TRILLIONS in debt.

    The US government has zero audit accountablity and you want to depend on them? Are you nuts?

    Getting out of bed each day is a gamble.

    So get a grip.. Take responsibility and learn a little about finances and live comfortably.

  • Report this Comment On September 04, 2008, at 9:10 PM, tucsoncyclist wrote:

    This whole thread is futile. We are here because we possess some level of experience in investing. Lets talk about the average Joe. Every year, and I mean every year during tax season I have someone in my office that has taken a distribution from a 401(k), whether from being cash strapped or changing employer. And every year I have the same conversation about this being a retirement account. They don’t get it! They don’t know what a 401(k) is for, they don’t know what an IRA is for. These are the people that are being protected. Daddy Warbucks wants these people to go to the local bank and have them facilitate their retirement. FOR A FEE! This is why the lobby is so strong. At the end of the day they don’t care if you retire or not, as long as they collect a fee.

  • Report this Comment On September 05, 2008, at 6:06 AM, none0such wrote:

    @BigNoseTexan - no one is arguing that SS is not awful. I for one agree wholeheartedly with you. Write your congress representatives to brave touching the SS third rail. But more to the point, if you want to really know what scary is, read up on the Bonus Army of 1932. SS was conceived as a safety net; it was intended to give something to people where there would otherwise have been nothing. Herbert Hoover was an economist before becoming president and knew that if the government came to the rescue of the have-nots (read 'people living pay check to pay check') during what he determined to be a natural market force (the beginning of the Great Depression), the people will expect the government to always intervene (the problem was that America hadn't experienced something this bad ever. In his defense he did start job programs which FDR expanded on and rehashed with progressive era initiatives). In the long run, Hoover was right. Just look at what ALL the social entitlement programs have become(16 amendments for SS!). Look at the Fed - it's primary function is to check inflation not fan the flames of economic progress and extend guarantees reserved for savings banks to financial banks.

    The point many dissenters are making is that whatever is left of the original safety net would be gone if you hitch everyone's prospects to the very vehicle that was in part responsible for SS being created in the first place - it defies logic and (IMO) reeks of special interests at best and recklessness endangerment at worst (read 'second revolutionary war'). Imagine the Social Security Act of 1935 being funded by the government buying publicly traded companies with YOUR MONEY. It would have never passed like that in 35 and it shouldn't pass today for the simple reason that anybody can already gain access to the power of equities.

  • Report this Comment On September 05, 2008, at 8:32 AM, bkemmere wrote:

    The biggest problem with SS is that some people have a fundamental misunderstanding about it. The SS was conceived as a means for providing supplementary retirement income. NOT to be fully relied upon as ones sole source of retirement income. Also, when SS was designed, it had 13 people contributing to the system to support 1 beneficiary. As the baby boomers start to receive SS benefits, the ratio of 13:1 will soon become 2:1, then 1:1. How can this be corrected is the issue that policy makers in Washington need to focus on. There is no sensible way to keep the benefits the same and have one person working support one retired person. Unfortunately, this system is huge stack of cards in a hurricane just teetering, preparing for an inevitable collapse.

    Now, I am indifferent to privatizing SS, but I do believe that each and every person should have their own SS account that THEY pay into if they want to receive THEIR benefits. How those funds get managed? There are plenty of options available (see numerous posts above). Either way, the shifting demographics are what is pressuring the SS system. The best option, IMHO, is to give people the option of investing in sure-fire returns, like Government bonds, or put in the stock market and let it do its thing. The only absolute solution is INDIVIDUAL SS accounts.

  • Report this Comment On September 05, 2008, at 9:29 AM, stroder wrote:

    I believe that the idea that a portion, a small percentage, be set aside for an individual to manage is a good idea. Many of the proposals do not call for a complete privatization of the system. The other requirement is that people should not be able to touch this money until retirement. Not enough young people are saving for their future, and a high percentage of those who do raid their 401ks when they move from job to. Maybe this could be part of a national education effort to get people to save. The power of seeing a savings account grow combined with paying off debt is a beautiful thing. Hey, maybe the federal government should try it!

  • Report this Comment On September 05, 2008, at 11:33 AM, dcreynolds wrote:

    Speaking as someone who is 30 and will never receive a dime of Social Security if it isn't allowed to be invested in the market I say BRAVO to this letter.

    To the rest of you old people who think that allowing private accounts is going to destroy the system, I'd like to say "You're welcome" for paying for your retirement. 'Cause I ain't going to see a dime in returns when it's my turn.

  • Report this Comment On September 05, 2008, at 11:43 AM, TMFMmbop wrote:

    There are some solid points being made on both sides here. But what I come back to is the fact that whether Social Security exists or not, every American should take advantage of the opportunity to invest in the stock market. For most people, as Alex pointed out in a previous comment, the right vehicle is a low-cost index fund placed in an IRA or other tax-advantaged account that one regularly adds principal to. Over time, despite market volatility, that account will go up in value and at least beat inflation. Now, there's certianly an educational component that needs to be addressed her. People need to learn about the stock market and options like index funds in order to pick the vehicles that offer the right risk/reward profile to meet their long-term goals. There is simply no incentive to do that, however, when politicians dismiss the stock market as a place where wealthy gamblers get lucky or ruined on leveraged bets. Though that happens, that is not the long-term reality. In fact, for better or worse, I'm more confident in the market's 50-year prospects than I am in Social Security's. I don't understand why we wouldn't want to try to get more people involved responsibly than scare them away, which is why comments like Obama's, in my opinion, serve to do.

    Tim

  • Report this Comment On September 05, 2008, at 1:40 PM, ImaSnort wrote:

    After pumping SS for 30+ years imagine what I would have available just playing an index. Pensions have gone the way of the dinosuars and with the emergence of 401ks, aren't we already responsible for our retirement investments? Can't see why we shouldn't be responsible for our SS also.

    In the near term, your'e probably better off at the craps table or sports book (not a very good poker player).

  • Report this Comment On September 05, 2008, at 2:04 PM, zuni7 wrote:

    I worked as a CME floor trader in Currencies and then 3 NYSE retail Stock Brokerages for a total of 27 years.

    Very few lay people have the emotional mind set to manage financial assets during up and down periods of the Markets.

    I believe most lay people have not received enough education to fully understand the psychology of markets. In fact, I feel our children should be taught Finance and Economics in school.

    Timing is so important in Markets, both Stock and Debt (bond) markets. If you are laid off from your Job, have a Medical Emergency or other crisis you may have to make a decision that is not wise nor prudent.

    Keep the investment commission sales people out of the Social Security business. They like the fees.

    Keep SS safe now. Thank you.

  • Report this Comment On September 05, 2008, at 2:06 PM, zuni7 wrote:

    How has the S & P done since year 2000? Didn't it take almost 7 years to recover to match where it was in Jan. 2000? Does anyone have a chart of price record of 2000 to today?

    TIA.

  • Report this Comment On September 05, 2008, at 2:37 PM, TMFMmbop wrote:

    According to my analysis, if you have bought $100 worth of the S&P 500 every month for the past 10 years, you would have turned $12,000.00 into $13,402.98 (excluding trading costs). That's a pretty crappy 1.1% annual return, but consider that we've seen two pretty rough markets during that time period and very harrowing volatility of late. Yet, you're above water, and if you have 20+ more years to go until retirement, then you're averaging it at a pretty good price right now, and building a pretty solid portfolio.

    Of course, if you only had 10 years to retirement, then you should not have been in nothing but 100% large cap US stocks over the past 10 years. You would optimally diversify into some international equities as well as into various kinds of bonds and a money market fund, which would have enhanced your returns (slightly) and put your principal at less risk of capital loss. But this is why I absolutely agree with zuni7 that some kind of basic personal finance/investing should be taught at the high school level, in lieu of something like Home Ec, Woodshop, or even PE. (I say this because I think if you're going to add something to a curriculum, you need to say what you'd take away.) But anyway, I think if you could have earned a positive return by DCA-ing into an S&P500 index fund over the past 10 years, then it's real concrete proof that anyone can invest in a way that makes money and does not take on extraordinary, gambling-like risk.

    Tim

  • Report this Comment On September 05, 2008, at 2:52 PM, zuni7 wrote:

    TIPs would have been a much better strategy. I can remember buying zero coupon treasuries with 6% in 1999 after my then firm, Morgan Stanley was pushing ENRON - same date it was recommended for clients.

    So from an investment insider, most brokers don't know markets. They are taught Sales and I was with 3 - Paine Webber Group, A. G. Edwards, (now absorbed by wachovia), and Morgan Stanley (Dean Witter).

    Puh-lease. I learned from my 6 years on the CME. Ted spreads, S & P 100, Bonds at CBOT -- retail brokers know little and to think turning SS into private hands or commissioned salespeople scares the bejeeze out of me.

    Don't mess with it now!

    Look at our Wall Street economy and what derivatives have done to the Housing market...

  • Report this Comment On September 05, 2008, at 6:39 PM, eddieferro wrote:

    In answer to the comment that said that the government only pays out 75 pct. of what a worker puts in, if this is so it's because some people die before they collect and others die soon after they retire, so naturally that brings down the average paid out. But soc. sec. is like an insurance policy: those who don't use it pay for those who do which keeps the system relatively solvent.

    I am 74 yrs. old and retired for 11 years and I have already received more than 3 times what I put in.

  • Report this Comment On September 06, 2008, at 1:24 PM, none0such wrote:

    Cumulative U.S. Retail Price Inflation (Annual Avg)

    1998-2008 = 29.23%

    [Year 2008 not included in inflation calculation]

    That means $100 invested in 1998 is worth about $77.73 today. With monthly inflation rates for 2008 at 4.28% 4.03% 3.98% 3.94% 4.18% 5.02% 5.60% to July and expected to remain high for the rest of the year, it is essential to make your money (or better yet borrowed money at these rates) work for you in the best way possible. The only way to do this is to own stocks over your entire working life time. So the comments on fiscal responsibility and financial education as early as possible are pertinent to coming up with a solution to retirement without relying on the SS we have today. Also, (and in keeping with the theme of the article) the fact that Obama can allude to the stock market as an instrument for irresponsibility at a major US university and not be taken to account on this hyperbole (granted it is just a populist attempt to snag votes) illustrates the scale any attempt at rectification must be in order to work: we are a nation of spenders not savers. It's hard to get as excited about pursuing an extra zero in the savings account as it is driving a new sports car or sporting the latest fashion designs (sorry for the sexist examples but you get my point).

  • Report this Comment On September 08, 2008, at 4:47 PM, zuni7 wrote:

    You sound like an actuary.

    I'm not getting what you are trying to say or do I have to go back and re-read all the posts.

    People invest on emotion.

    Brokers are sales people paid for transactions.

    I feel you must be very young or inexperienced because I have worked with markets and people's money for years and timing must be very good in today's investing environment.

    Before we turn over Social Security to Financial Institutions -- and that's what will happen, Let's look at all approaches to solutions for fixing Social Security.

    In re Warren Buffet: Once a Goldman-Sach's salesman was pitching an IPO and he handed out T-shirts to Brokers - the quote was "Diversification is for people who don't know what they're doing." - Warren Buffet

    ... gotta go now and see what the Fed and Treasury is up to today. Shame Shame Socialist Fed!

  • Report this Comment On September 24, 2008, at 11:07 AM, slapper95 wrote:

    You missed the point. Investing long-term in the market is not a gamble... but he's talking about gambling with the people who might handle the money. That distinction is critical and important. Not everyone possesses your apparent integrity.

  • Report this Comment On November 05, 2008, at 8:28 AM, airosaul wrote:

    This article looks even worse now...imagine turning 65 on Nov 1. of 2008 and wanting to retire. hopefully, you would've invested conservatively before that point but you can't expect all or even most people to behave rationally with the stock market.

  • Report this Comment On November 07, 2008, at 5:02 PM, change365 wrote:

    Short answer- The stock market is a gamble. That means, there are not guarantees. It's a game of chance. You might win a little/you might lose a lot or vice versa. And just like gambling, if you can't afford to lose, you can't afford to win. You should NOT invest/risk your hard-earned money if you need it for expenses you'll incur now or for retirement. "Stock Market Gambling" is a rich man's game -- and unless you've got money to burn, you should find another way make your money grow legally.

  • Report this Comment On November 08, 2008, at 8:50 AM, EaglesonUK wrote:

    There are some steps that could be taken to provide a better rate of return for retirement funds. Suppose that a new exchange was created solely for the purpose of long-term wealth building in retirement accounts. Companies would have to meet stringent criteria in terms of capitalization and business performance before being listed. There would be no speculative measures such as options, futures, short selling, hedge funds, etc. Long-term buy-and-hold only, with a minimum holding period to discourage active trading. We could make this a DRIP-style scheme so that anyone could invest whatever they could afford.

    For the government, this would be a way to solve the Social Security problem. For businesses, this would be a good way to generate steady and dependable investment income, For individuals, this would be a better way to slowly amass wealth for retirement.

    Take it a step further, and allow parents to create baby-IRAs for their kids for retirement, college, and first-home purchases. Let the power of compound interest work those extra 21 years and we could dramatically change the social conditions in America in a single generation.

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