Food for Thought:
Jeff Ferguson in his essay, "Is a Secular Bear Market Inevitable?" writes:
"Contrary to a common belief, equities didn't simply move sideways through the 1970's before moving to new highs with the great bull market starting in 1982. This illusion is caused by the inflation, which plagued the period. Deflating the S&P 500 with the CPI reveals that the market peaked in 1969, not 1973, before falling 64% over the subsequent 13 years, ultimately bottoming in 1982."
I will pause there to let the significance of that seep into our brains.... If they had privatized Social Security in 1969, how would you feel if your retirement had lost 64% in buying power, as you got poorer and poorer, until 1982? In effect, you can afford to buy slightly more than a THIRD of the basket
of stuff you could have bought in 1969!
But it gets worse than that! He goes on to say, still adjusting things for inflation, "Stock prices failed to exceed the 1969 peak until 1993, 24 years later, and didn't move convincingly through the 1969 level until 1995."
That's 26 freaking years in a row that you failed to break even in the stock market, i.e. before the 1969 level was reached. And how long will it be before the guys who bought at the exact bottom actually make a profit? Don't ask.
But can it get worse than that? Yes.
The authors go on to say:
"At this point the weary, and rather aged, investor still faced capital gains taxes on a phantom 300% gain wholly due to inflation. Covering this tax liability likely extended the true recovery period to within shouting distance of the bear market in stocks beginning in 2000, the most recent peak in equity
markets."
So, net of inflation, and net of taxes, the investing dudes and dudettes in 1969 NEVER actually showed a profit from their investing in the stock market! And the two authors did not even mention the fees and commissions and costs that their hypothetical investor would have had to pay to the greedy, grubby financial services industry all these years, nickel-and-diming you to death, including "inactivity fees" which you have to pay because you don't do enough trading to
suit the guys who charge you fees for that trading.
And, depending where you live, they neglected to deduct state taxes on the gains, and/or the value of the holdings!
Adjusting for those additional --- and real --- factors, our hypothetical investor from 1969 is back under-water yet again....
And now we are talking about putting Social Security money into privatization without first addressing our systemic deficit problems, which ENGENDER return-robbing inflation? And people are actually calling that a 'sure thing'? |
