Investors Not Worried About Market Risk

October 31, 2001

While opponents of Social Security Privatization have pointed to recent Stock market declines as evidence that the market is too risky to allow workers to invest, actual investors are recognizing the long-term safety of market investment. A new Gallup Poll shows that 70 percent of investors believe that the market will be higher a year from now. Nearly three-quarters of investors believe that this is a good time to buy.

These investors are simply recognizing a fundamental truth. Over the long-term, private capital investment is remarkably safe. Historically, long-term investment has yielded average annual returns of nearly 8 percent. There has never been even a 20-year period during which the market lost money. Those returns look awfully good next to Social Security’s projected returns of barely 1.5 percent.

Indeed, it’s worth remembering that a person retiring today would have begun investing roughly 45 years ago, when the Dow was at around 600. The market would have to fall a lot more than it has recently to wipe out all the gains that person would have made.

Of course, Social Security privatization does not mean investing only in stocks. Under most privatization scenarios, workers would be able to invest in a wide variety of instruments, including bonds, annuities, money market funds, and various products that provide a guaranteed return.

The real risk is continuing to rely on a Social Security system that is more than $22 trillion in debt and where workers have no legal or property rights to their benefits.

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