- The Washington Times - Monday, May 7, 2001

There they go again. On the day President Bush was naming a commission that will draft a plan to establish private Social Security retirement accounts, Democratic leaders were wildly warning that workers could lose everything by investing in the stock market.
It is ironic and sad that the party that was once led by a president who said "the only thing we have to fear is fear itself" is now reduced to peddling fear itself.
Unable to come up with a well-reasoned case against the very sensible and compassionate idea of letting workers get a much better return from their hard-earned payroll taxes for a more comfortable retirement, Democrats argue that the stock markets first-quarter downturn is reason enough to reject Mr. Bushs partial privatization plan.
Of course, the Democrats making this preposterous charge are invested up to their eyeballs in the stock market. Its part of their congressional pension plan. Its OK for them, but not for the little people.
The truth is, a diversified personal investment portfolio, even with the downturn that hit Wall Street last year, is going to do much better than Social Security over the long term.
The reason is that a stock and bond funds performance is not measured over a year or two, its measured over a working lifetime. There are years when stock mutual funds lose their value, and years when they yield spectacular growth. As all investors know, the real measure of their performance is averaged over many years. And nothing performs better than equities over a period equivalent to a persons working years.
Take, for example, the New Perspective Fund, one of the nations largest mutual stock funds. Last year, its value fell by 7.24 percent. But the year before, its value grew by 40 percent. The year before that, it rose by 28.5 percent. And it rose 15 percent the year before that.
Over the past five years, even with last years plunge in the markets, the fund grew 16.2 percent a year on average, 15.6 percent over 10 years, and 14.9 percent a year over the life of the fund.
Nevertheless, there was House Minority Leader Dick Gephardt, Missouri Democrat, whose investments have made him a lot of money during his congressional career, telling reporters: "It is a huge, fundamental change to privatize it to allow people to invest their accounts on their own. If you just look at the last year of experience with the stock market, you know that is a risky idea."
What the Democrats do not want to face, and what Mr. Bush appropriately focused on last week, is that Social Security is a very bad deal, especially for the lower-income workers who form the Democratic Partys base. As the president said last week, working Americans "might as well be saving their money in their mattresses."
Social Security, at best, offers a meager 1 percent investment return on a lifetime of payroll taxes. For many Americans, depending upon the number of years they live, the return is negative.
The much stronger earning power of the stock market can dramatically change that. "The return on a prudently mixed portfolio of 50 percent stock index funds (funds that invest in blue-chip corporations in the Dow or the S&P; 500) and 50 percent government bonds could average 5 percent annually," says David C. John, Social Security analyst at the Heritage Foundation.
Compare that with the minus 0.3 percent return that a 35-year-old man with average earnings can expect to receive from the government under the present system.
In their campaign of fear, Mr. Gephardt and his cohorts keep saying that under Mr. Bushs plan, near-retirees would have lost much or most of their savings in the last market plunge. But most investors know that is not the case, because older investors nearing retirement would shift into fixed-income investments (such as bonds) that have little or no risk of losses.
As for investing in the stock market, Mr. John notes that investing for ones retirement is a long-term proposition that eliminates risk. "Though stock returns fluctuate widely from year to year, earnings on stocks held for 20 years or more have always gone up," he writes in a recent analysis.
This is significant, he points out, because we are talking about building retirement assets over 20 to 40 years or more. Studies by the investment firm Ibbottson & Associates show that since 1926, large company stocks have had returns that vary greatly, from plus 53 percent to minus 43 percent. But over every 20-year period, they yielded a positive average annual return.
This is why the Democrats strategy of playing the fear card is doomed to failure. With the emerging investor class numbering 100 million and growing, Americans know they will be better off investing in the U.S. economy than in an outmoded government program that faces bankruptcy in 15 years.

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