Tuesday, March 6, 2007

Social Insecurity

George Burns said, "Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples." The government is trying to convince all the baby-boomers that they are too young to retire—that they are going to live as long as George Burns, and they won’t need much in the way of medical coverage. There are several reasons for this attempted psychological adjustment. The Geritol Posse is growing, the money is going and no one is sowing.
I’m 10 years away from retirement age and I already get three mailings a day pitching financial management. Those are the people that want to help you bury your nuts while they gather their own. If they were honest they would start the conversation with something like this, "I’ve reviewed your portfolio, and if we manage your stocks properly, there should be plenty of money for both of us."
What I am hearing mostly is, "Invest for the long-term." That usually means a short term investment that failed. Every one of these experts will tell you to give up your morning coffee and invest the money in the market. At a 10% annual rate of return you will be worth more than Bill Gates by the time you are ready to retire. Then they help you invest your money in schemes that return 3%, which is 1% less than inflation. If it was so easy to earn a guaranteed 10% return—wouldn’t that be the place to invest the social security lock-box. Remember the "lock-box?" That was all they talked about back in the Bush-Gore campaign. The box has been missing ever since.
Social security—isn’t that an oxymoron? At least reforming Social Security is a start. The government is finally admitting that it can’t be trusted with our money, and corporate America jumped right on that bandwagon. Did you notice as soon as the feds started making excuses about missing money the airlines and automakers climbed right into the saddle with them?
Is it a tax or just plain slight-of-hand when Social Security and so-called retirement accounts are raided with new rules? When I entered the work force and began feeding the fund, the age to begin drawing it out was 65. Now they changed the rules, and I can’t draw until 66. I would call that a huge tax on my money. If I draw at 62 they whack me for 30% the rest of my life. What do you suppose they are going to do in the next 10 years as I approach 66 and I disappoint the government and live?
Jean Baptiste Colbert, finance minister to Louis XIV, summed up his views on taxation, which seem very similar to this governments: "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing."
You could use the same example against the money managers who keep plucking large management fees from the pockets of mismanaged portfolios.
Have you ever had a financial manager tell you about tomorrow? They all tell you about yesterday. I already know what I should have bought last year, it’s this year I’m interested in. They say you have to know if it’s a bull market or a bear market. Actually, you have to be more careful that the bull your financial advisor gave you isn’t eaten by a bear he didn’t tell you about. If beating the market was as easy as wildlife watching, I’d become a financial planner myself.
Let’s look at the truth about investing your beverage money. Instead of using the example most financial planners are using—you know, the fancy, fattening latte specials everyday on the way to work and the chocolate chip muffin to savor along with it. Let’s use beer instead. Say you gave up half your beer for a year. You invested it in Enron and Worldcom because that’s where the smart money was growing the fastest and you quadrupled your money. Now, both stocks are worthless. Had you continued to buy your beer, turned in all your cans for the 10 cent deposit, you would now be worth over $200.00. So a financial planner worth his salt would advise you to drink heavy and recycle.
So don’t be confused by the theories of diversification and asset allocation. If you put your hard earned money in a passive managed index fund and let it grow, even during the coming trickle-down, voodoo economic, hostile take-over of your funds, you will be further ahead. Though new government regulations are designed to make what you have left last longer—you can still leverage ahead of the masses that give their millions to the stranger that manages to misappropriate a large portion of the portfolio pie into his own pocket.
I was born in 1949, the same year "Silly Putty" was introduced. If I would have invested in "Silly Putty" when I first heard of it, what an impression it could have left on my balance sheet. Had I moved into "Hoola Hoops" when they first started going around, my portfolio would be swinging today. The sad fact is you never know. Instead of "Silly Putty" and Hoola Hoops" I could just as easily ended up with "ilostallmymoney.com" or "Kmart."
If I could figure out how some young guy took bankrupt Kmart and bought Sears with billions in leveraged stock I could probably afford to buy one of those expensive, new Diehard batteries—which is all Kmart sells, now that Sears owns them!
Maybe we should get this Sears guy to jump start Social Security. He could leverage it into the black with all the red ink in Washington! —Dick E. Bird