A Future Paved With Riches -- or Fool's Gold?
Investment gurus have pounded that message into the heads of ordinary Americans in recent years, inspiring them to plunge into the market in record numbers.</br></br>Now the notion that stocks generate much higher long-term returns than other investments is propelling another momentous shift in public sentiment, which may also end up channeling hundreds of billions of dollars to Wall Street -- from the Social Security program.</br></br>On one side of the debate is an alliance of conservative Republicans, moderate Democrats and free-market economists who champion "privatizing" Social Security -- hitching its fortunes to the stock market and possibly transferring back to workers responsibility for managing a portion of what the government now collects in Social Security payroll taxes. The privatizers view their idea as an obvious and relatively painless way to steady the program's shaky finances.</br></br>In making their case, the privatizers often brandish data of the sort displayed in the chart at the right. The graph, prepared by analysts at the Chicago-based investment firm of Ibbotson Associates, compares the performance of an index of large corporate stocks with that of 30-year government bonds since 1925, just prior to the Great Depression. The graph uses "rolling averages" -- each year's figure indicates the average rate of return over the preceding 30-year period.</br></br>After adjustment for inflation, Treasury bonds -- the only asset held by the Social Security trust fund -- achieved an average annual return of 3.1 percent over that period. Stocks, by contrast, reaped an average return of 6.4 percent.