Investing for Dummies
When it comes to managing money, the
L.A. Times says we’re all dummies. The next step in the logic is
for Social Security to stay the same – to protect us from ourselves.
By Amy Menefee
May 12, 2005
Â Â Â Â The
sub-headline on Peter Gosselin’s May 11, 2005, Los Angeles Times
article summed up its prevailing position. It read, “Nobel winners
and top academics fumble the sorts of decisions Bush’s Social
Security overhaul plan would ask average Americans to make.”
Gosselin interviewed Nobel prize-winning economists who revealed
their own poor investment decisions, and he presented that as
evidence that personal accounts would be terrible for Social
Security. His reasoning was that if economists can’t be trusted to
invest wisely, then you’d better not leave John Q. Public alone with
his own money.
Â Â Â Â “Recent research suggests that people, by nature, often
make poor economic decisions,” Gosselin wrote.
Â Â Â Â The problems with this “logic” are numerous. The most
glaring is that President George Bush’s plan for personal retirement
accounts does not give people unlimited freedom to invest and
possibly to lose their money. Gosselin did include some truth about
the White House plan – such as the fact that “account holders would
be allowed to invest in only a handful of conservative stock and
bond funds” – but he buried that nugget at the bottom of his more
than 2,000-word story. And he included only one short quote from a
Bush spokesman, while the rest of the story was devoted to
undermining the Bush plan.
Â Â Â Â Gosselin said that “the president’s accounts plan would
require people to do a very good job at investing.” But they
wouldn’t have to do any better than Congress or the other 3.4
million people already do with the Thrift Savings Plan. The
president’s plan is modeled on this risk-minimizing pension system
already in place for federal workers. TSP investors choose from
conservative stock index funds and bonds that historically return
anywhere from 1.95 to 8.6 percent (adjusted for inflation),
depending on the fund. Social Security’s current payout is less than
2 percent of a worker’s payroll taxes, and that will worsen when the
baby boom generation begins to retire in 2008.
Â Â Â Â Ignoring these facts, Gosselin misrepresented the
president by saying that Bush is going around the country telling
people they have to invest in the stock market on their own now
instead of getting Social Security benefits. “People have grown so
comfortable with stocks and bonds, he asserts, that they can invest
their way to more prosperous retirements by watching their quarterly
statements, adjusting their portfolios and looking out for
themselves,” Gosselin wrote.
Â Â Â Â Social Security aside, the underlying assumption of
Gosselin’s article is that people are not paying attention to their
retirement plans. If true, that is not good news; however, people
are free to mismanage their money just as they are free to make
profitable decisions. Just because they make bad choices doesn’t
mean they shouldn’t have the freedom to make those choices.