Yes, much better. You see, you have all the power of modern finance working for you. If you lose alot early on, then you have lost only a little, because you have just started the journey of a 40 odd year working life. That is the beauty of social security contributions, they mean a steady contribution stream of dollar-cost averaged money flowing into your personal account. I'll give you a classic example. I have been in a freedom fund since late 1998 in my 401k and I'm actually up quite a bit in that one fund, despite experiencing some downmarkets. The reason is that my contributions have never wavered and the returns in the last couple of years have been pretty decent.
This is a good comparison, especially if the gov't applies the same restrictions on withdrawal as exist in today's social security system. If you are just starting, you can withstand more risk, but if you are very close to retirement, you can't. That is what horizon funds are all about. Let me make it extremely concrete for you.
If you were about to retire in 2010, then you would invest in the Freedom Fund 2010. Take a look at the returns over the last several years, which were years in which the 90's gains were typically erased for most people.
finance.yahoo.com
Any losses experience in the 2 down years were erased in 2003. Now take a look at the Fidelity Freedom Income fund for people who are currently retired:
finance.yahoo.com
Not much risk, eh?
Now, if you are a young fellow just getting started, let's say you are 30 and plan to retire in 2040 and invest in the Fid. Freedom 2040:
finance.yahoo.com
Alot more risk, but hey, you have time. So you will continue to contribute your dollar cost averaged funds and over the next 36 years, there will be plenty of time to get a great return.
Anyway, check out the returns for all of the Freedom Funds:
personal.fidelity.com
You can see that the longer the time horizon, the more volatile they are. The shorter your horizon to retirement, the MUCH safer they get. And the beauty of those funds is that they do all the reallocation to safer investments over time, automatically. So once you make your election to invest in a certain fund, as I have done, I never have to look at it again, because as the fund reaches your retirement date, it will resemble the Fidelity Freedom Income Fund (fffax) in its allocation. Very nice and convenient...and SAFE.
We live in the world of modern finance. These simple finance tools can help you avoid losing your shirt. If applied to a SS personal account, it could ensure our kids live very well in their retirement years, not just eek out some meager existence.
Seriously, folks, think long and hard about this SS issue, because there are tremendous benefits that all of us will share, if allowed to invest our own money. |
