mindmeld,
FWIW, I'm about 60 credits into a 120 credit MBA program. My GPA is 3.8 out of a possible 4.0. To call me ignorant is, to put it mildly, off the mark. We may disagree about economics or finance, but it is hardly because I'm a naif.
Re: Why would any sane person not (gamble in the market)?
Two reasons come immediately to mind. In the early 1980s, Margaret Thatcher privatized the British pension system. Broker overcharges, gouging, fees and chicanery were so severe that the Tories had to re-write the law within two years in order to curtail the outrageous rip-off of the general public.
And more recently, the Swedish privatized and within one year, their stockmarket had swooned -68%.
Let's work a hypothetical with the Swedish example. If you do the math, starting with a hypothetical $100,000 here's how this works out, assuming your average yearly 8% gain, except when reality has proved otherwise:
Starting value: $100,000
End of year 1: 32,000
End of year 2: 34,560 (previous sum x 1.08)
End of year 3: 37,324
4: 40,310
5: 43,535
6: 47,018
7: 50,779
8: 54,842
9: 59,229
10: 63,968
11: 69,085
12: 54,612
13: 80,581
14: 87,027
15: 93,990
16: 101,590
Whew! We made it. We're made whole again. But wait! Except that we haven't discounted for inflation. Say inflation runs, on average about 3% per annum. In that case, it will be over 30 years before your son is made whole. Holy cow. Such a deal. |
