This is an excellent explanation of why privatizing Social Security would be such a terrible idea.
It depends on where your money was. If you had it in risky funds, then you lost lots of money (after gaining lots of money). If you had an index fund, then you gained lots of money for many years then lost a small but significant chunk of it at the end. If you had certain types of bonds you lost nothing.
For index funds and bonds, the outcome in terms of “risk” is negligible. In the long term, you will always have a lot more than you started with, especially if you contribute every month (for index funds and solid bonds). If you started in 1977 and retired in 2007, with mostly index funds and bonds, if you contributed each month then your gains were very large overall.
Investing for retirement is not risky (unless you choose risky investments). If it was risky, then people wouldn’t do it.
No more so than wages.
Sure, and it’s compensated by a ROI. Not to mention a deduction for losses.
What benefit does gambling on the stock market have to society? Be specific.
And my paycheck is arbitrarily reduced by income taxes. I don’t whine about it.
Risk is compensated by the profits realized. Whether the profits are taxed at 23% or 28% is trivial.
A higher capital gains tax benefits society by making more money available to the government, which will enable it to spend less on interest and/or fund more useful programs.
Nonsense. If one had retired in 2007, their assets in the stock market, even in index funds, would have declined more than 20% by 2009. That’s risky.
IMO you are either just trying to be difficult or incredibly myopic. Even if EVERY wage earner in America really worried about your scenario every day (which is patently false), the differences between that “risk” and investment risk are not even remotely on the same level.
When you earn a wage, there is VERY LITTLE chance that you will not be paid a day’s wage for day’s work. That is - if not a guarantee - a pretty damn safe bet. Additionally, there is virtually zero chance that at the end of your work day, you will be told that you will not be paid AND you just lost X% of the money in your bank.
The same cannot be said for investing and therefore the risk is MUCH greater. If you cannot agree to what is so obvious, then their is little anyone can say (or type) to change your bias.
Liquidity in the financial markets.
Now answer my question please. :rolleyes:
Once you’re retired, put your money into treasury bonds, or CDs, or an annuity, and there’s no risk.
Mr. Gotrocks invests 0.1% of his fortune in a company and may lose it. Cry me a river. Joe Sixpack invests 20 years of his life in a factory and it goes under and he’s too old to find a job. Yes, Joe WILL get paid for the time that he works, but he has no security that the job will be there tomorrow.
If investors were stupid enough to invest in one thing, you might be right. However investors invest in a wide variety of products, and the impact of any one of them going down is quite small, especially because investors typically have very safe investments also.
On paper I lost several times my salary during the crash. I didn’t lose a minute of sleep over that. I was a lot more worried about getting laid off. And I have reserves. People living on the edge might not worry about getting paid for yesterday’s work, but might worry a lot about tomorrow - especially when lots of people are getting laid off.
There is lots of risk that the return on this won’t be enough to live on. That’s why you diversify, and call sell off stuff you haven’t taken a loss on. My father was very into Munis, and didn’t lose a cent during the crash. (The prices went down later, but have recovered.)
But that’s not what I was saying – the question was about the money already earned through investments once someone is ready to retire… if you invested in index funds from, say, 1977 to 2007, with a contribution each month, your overall return was very, very good. And then when you retire in 2007 (or even 2009), even if you lost a chunk of those very large returns, you can invest with no risk in bonds, CDs, and the like until you die.
Overall, that’s a worst case scenario – and the gains would still be substantial. So the risk is/was negligible, as long as one didn’t invest in risky stocks and funds.
If I earn or inherit, say, $10 million or $100 million, it would be trivially easy (and risk-free) to live comfortably off the investment returns. Bonds and CDs alone would yield a very, very comfortable income.
This is what I mean by risk-free investing. Becoming rich is hard (unless you inherit it). Staying rich is very, very easy… at least as long as you’re not a complete idiot.
All investments have some risk. This is a fact.
Yes. I few things.
First, how about some proof that capital gains tax rate and investment rate are related in the way you are contending. I agree with you in theory that there is a relationship, but I believe it is not the simple relationship you and Sam are claiming. Over the past 40 years we have had many different capital gains tax rates, show me how investment rate correlated.
Next, both you and Sam keep claiming that investment has risk while being a laborer does not and I do not see how this is the case?
Several years ago I had several companies vying for my employment, I chose one and was laid off 6 months later, could not find a job, and blew through my savings as a result. I lost a lot in this transaction, years of savings wiped out because of my decision. Are you saying that there was no risk in my employment decisions? How was my income “guaranteed” as someone said above? I know other people that invested in careers in industries that no longer exist and now they are in the in-enviable position of having to re-train themselves in their 40s for a new career where they will start again on the ground floor. Is there no risks in their experiences? I get the feeling that you view laborers as indistinguishable units of production, but as a cog I can tell you that I am not the same as other workers and not all positions are equal in my eyes.
So how about you quantify for me the difference in risk. This is the contention that brought me into the tread in the first place though I have not read the newer posts yet Why can we not use average return of world stock markets to quantify the risk to investors?
Gotta go, but I will come back this later…
So, can you quantify the risk for me? How much riskier is it for the average investor compared to the average worker?
Another thing that would help convince me is some evidence that risk is not undervalued in today’s financial markets. If you take a look at CDO’s and the incestuous relationships between our credit rating agencies and the major investment banks, I don’t think risk is truly a factor in
Taking a look at the financial markets over the last decade or two, I would contend thsome proof that taxing capital gains at a lower value than income actually has a positive effect on investment.
For certain investments, the risk is close enough to zero (as in “unless the USA collapses into anarchy, you will earn money”) that it can be safely ignored.
Economic growth depends a lot more on the demand side than on the investment side.
A CD for $10 million is not risk-free, since FDIC insurance only covers the first $250,000, or 2.5% of your investment.
And I am baffled by your repeated assertions that bonds are somehow “risk-free”. Tell that to people who invested in Argentinian bonds. Would you, personally, invest in bonds sold by the City of Detroit?
Maybe, but that demand cannot be met without the capital to build the factory.
Not all bonds. US treasury bonds are an example of a (for all intents and purposes) risk-free investment. And for CDs, you could easily spread out your money to avoid that (put it in multiple banks and multiple CDs).
These are, effectively, risk-free investments. Sure, you might lose your money if a meteor takes out America… but I think you’ll have bigger problems. Meteor strikes aren’t exactly an investment risk.