The author replies.
Unfortunately, the 50% loss in equity holdings is true. I monitor it every day to see if it will ever go above that threshold.
I was told in January 2000 that the dotcom craze was going to expand even more. I invested money in two high-growth funds: Putnam Voyager Fund and Putnam Growth and Opportunities Fund. If you remember, the NASDAQ index reached 5250 in March 2000. Right now, the NASDAQ is at 2100. Using the percentage change formula, that is a net loss of 60%. To compound things further, these funds generally were invested in stocks that paid no dividends to mitigate the capital losses.
I believe that the longer the time horizon, the less these losses will be. However, five years later, I am still -50%. Oil prices have now reached $60/barrel, and inflation and interest rates are increasing. We cannot assume that future events are dependent upon past events. If they were, everyone would have invested in the Dow components of 50 years ago. Looking at AT & T and General Motors, we can infer that these are not mathematical equations that will always hold true.
Luckily, only 10% of my portfolio was in the aforementioned Putnam funds. However, what if I was now ready to retire and I had 100% of my funds in these funds? And I am a CPA. Can ordinary investors be hoodwinked the way I was? You better believe so.
Simply put, let's keep Social Security intact. We cannot play Russian Roulette with retirement money. If you are wealthy and lose, so what? Your investments are almost certainly diversified. The working-class and middle-income people, however, might not be able to sustain such a loss. That is why privatizing Social Security is definitely the wrong way to go. We have already seen that privatization has been unsuccessful in other countries. Let's think about income demographics besides the rich for a change. Then, we will see a well-balanced and -fueled economy. The "trickle-down" theory of supply-side economics has never worked and never will.
Eric Rothenburg, CPA
Kingsborough Community College
City University of New York