I believe situation for long-term investing like retierement is getting worse. After all quantitive easing and low level of interests rate, the capital gains on safe assets are minimal accounting for inflation. As an aftermatch capital gains on everything else are getting lower. Years of 10% gains over long-time are over, even 8% looks over-optimistic over long term for huge amount of people.
Maybe our capital system couldn’t effieciently store so much savings while keeping reasonsble economic growth with ageging population.
At this point AGI and universal basic income may be the best hope for the bottom 90% of population.
“Maybe our capital ststem couldn’t efficiently store so much savings while keeping reasonable economic growth with an aging population”.
This would only be true if the investments that the pension funds made were bad. If they invested in a stock index or vanguard fund, for instance, they would reap the benefits of the overall rise in markets. In essence, the more risky bets they make the less returns they can make. But the average drift of the markets has been up and to the right.
If we make bad investments on a huge scale, then we invite systemic risk. But as long as enough of the investments produce a return, the pension funds can invest in a mix of VC funds, market indices and so on and so in.
After all, money sitting around is simply lent out for some productive use. That’s the essence of fractional reserve banking. The bet is that most of those investments will generate far more returns than the bad loans and write-offs. As long as you diversify your risk, you should keep the same drift while keeping volatility down.
Assuming infinite growth in a finite system is wrong. Relying on a system that was invented and meant for societies where population is growing double digit is wrong when the population growth stops or when it is declining (Japan, Europe). The huge inertia of the classical pension system is killing it, "adapt or die" already put it into a coma.
Pension funds assume 6-8% real returns in their actuarial calculations (and even then, most are painfully underfunded). If real returns come in much lower than that, then many of the State, local, and private pensions will be destabilized. Social security and Federal pensions should be fine no matter what.
Interestingly optimistic. I've been doing my recent retirement calculations with 5% nominal returns. I suppose it's because I'd rather be pleasantly surprised in retirement than starve.
30 year treasury bonds are currently yielding around 2.6%. Doesn't that mean that investors are pricing in a significant risk that they won't get a better return on other investments over the next 30 years? The world might be following Japan's lead here.
Cite, please. America went through a painful contraction in tax revenues during the giant recession but have bounced back since then. Taxes have not notably increased.
Look up your local governments budget history to see the portion of tax revenue going to pay for defined benefit pension and other post employment benefits (OPEB).
In the vast majority of cases, this is increasing, due to underfunding, bad or corrupt investments, and over promising to buy votes.
Note the numbers are based on rosy government assumptions, not real IFRA standards that private entities are subject to (for no other reason than politicians can vote themselves an exception).
If your city/state hasn’t been hit yet, just wait. The people of CT/IL/NJ/KY are finding out now, and it’s going to get worse. Further decreases in funding for colleges, infrastructure, selling government assets (e.g. Chicago selling parking fee revenue) that can be put off into future. Increases in taxes, toll roads, government college tuition price, property taxes, vehicle registration fees.
I have businesses in various states and locales, and all of them get various new taxes such as “elevator inspection fee” or something similar which was never itemized before, and of course they always go up.
Feds control the currency and can print money. After watching QE, I don't believe printing a few trillion dollars would create meaningful inflation, especially while the USD remains the world's reserve currency.
This simply isn’t true. My tech portfolio which consists of investment in only 12 companies is up this year by 28% at the moment, and last year even with the downturn in October through December I ended with gains of 17% for the year, and I assure you I’m no stock market wizard, and in fact I’ve never had a year that ended below 10% since starting that portfolio.
You could just say that’s thanks to the tech industry, but what’s your point? Through history there’s always a hot industry making money, be there.
My index fund portfolio only sees gains of 7-8% on average, but the trade off obviously is that it is not at the risk level of holding individual stocks. I barely even check it, individual stocks are what get my attention.
The point is, the gains are out there... always have been. But you have to step up and not be willing to let your investments just cruise on autopilot. Because financial education is so poor in this country, people rarely do it.
edit: Not sure why the down votes. Don’t believe? Here’s the current returns of my portfolio. Mind you, all of these were purchased around the beginning of the year because I had sold off everything to limit losses around the end of last year.
It is well known than on a 10+ year horizon, only about 10% of professionals engaging in active investing outperform the S&P500 index fund. The proportion gets worse when you expand the horizon. The fact that you did well in 2-3 years is simply noise. That you didn't address this indicates a lack of investment knowledge. Everyone has met people like you who do a lot better on some years than the market does.
(note you did not specify how long you've had your portfolio).
A 5 year window is noise. Even a 10 year window is mostly noise. See the plots here:
OK - Can you tell us what your effective rate of return has been over this 10 year period? The S&P 500 index fund has increased 3x, which is about a 12% effective annual return.
You're being downvoted because your portfolio's performance is almost certainly a matter of luck and a bull market, not your clever investment research. Not even Berkshire Hathaway makes consistent 30% annual returns, and they employ plenty of "stock market wizards".
Ask the value investors who chased strategies like Berkshire Hathaway the past 8 years how happy they are with their returns compared to those who invested in growth stocks.
Tech was pretty hot in '99 too. If the next dotcom hits and your tech portfolio loses 90% of its value in the next two years, what will your real returns be?
Maybe our capital system couldn’t effieciently store so much savings while keeping reasonsble economic growth with ageging population.
At this point AGI and universal basic income may be the best hope for the bottom 90% of population.