6. Average investors in stock market (6/2/05)
Everyday, in debate of Social Security privatization, I always encounter with the argument, "Historical, the stock market offered 10% returns over the long haul (40 years)."
Or "average S&P goes up 10.5% each year. In latest two years went up 50%."
It seems there is a strong reason to invest in stock market. 10% return each year, what a brilliant figure. Yet it's a gimmick.
The flaw for this theory is that high return from stock market doesn't mean high return to average investors. But Bush never talked about this. And seldom media talked about this too. One day I finally found a data about the return of average investors. And found why media and government avoid this topic, the most important topic. Read this:
Quote, "Over the past 20 years, the average investor in mutual funds that hold stocks earned almost nothing once inflation was taken into account, even though stocks enjoyed terrific gains.
These are among the results of the 12th annual study of investor behavior by Dalbar, a Boston financial-research firm.
The study found stock-fund investors had returns averaging just 3.7 percent a year from 1985 through 2004, while the Standard & Poor's 500 index returned 13.2 percent a year. Annual inflation averaged 3 percent, chewing up most of the investors' gains." ("Break the buy-high, sell-low pattern" S.J. Mercury News, 5/8/2005)
There did is high grow up of S & P index, there was also a low return for average investors that almost was nothing if considering inflation.
Average people don't care about the high index of S&P. They care about thier return. Where did the money go? It went to the firms which control the market.
To my equation, (suppose the stock is S&P index, oringinal price at $100, in 10 years period)
37 (average investors gain in 10 years) + 95 (special interest group gain in 10 years) + 100 (capital gain of S&P company) = 232 (price paid by potential loser after 10 years)
One thing I should remind you that this is the result of mutual fund. Though there was little gain, the average investors haven't lost its capital because the fund was managed by expert. What if there is a real "privatization", average investor does it individually?
Here is a story again seldom to be reported.
Re: This is a problem that is beginning to be recognized. Since 1964 Nebraska offered state employees the chance to manage their 401(k)-type plan. Extensive employee education and training seminars were given, and everyone expected outstanding investment returns. But when the state audited the program in 2000, the results were incredibly discouraging: employees were making bad investment after bad investment. So in 2003, Nebraska eliminated employee choice from its 401(k) plan.
From: NewCartesian
http://forums.washingtonpost.com/wpf...s?msg=2800.351
Hardly a gain (with expert) or a loss (invest by yourself even trained), that's average investors' encounter in stock market.
The most important thing is this happened in a grow-up market. That more and more pension fund were guided into the stock market. Yet, average investors had such a poor result. What if the trend reversed? (When the fund lured to support stock market is exhausted like what I said in "4. The reverse point"?)
Of course, Bush will never tell you this. Otherwise, how can his group get fatter without your fund joining in?