Singapore citizen also have been using their Central Providents Funds for buying home rather leasing of homes, as the News homes there be it from private or government are all 99 years lease.
Well anyone who have experience the losses in stocks & Shares in 2001-2002 certainly cannot forget their dreams become bubble bust. As written earlier. The only way for people to be confidence in utilizing their Social Security to invest is through:
1. The Education program
But most importantly is
2. Revamp & simplified the Social Security System.
Most Americans no good at investing
By Adam Shell, USA TODAY
NEW YORK — Robin Neil Haberle, 45, wants the chance to manage every penny of his Social Security payroll taxes. The marketing professional from Media, Pa., cites the main reason he backs President Bush's plan to create private accounts: "I've proven to be a more prudent investor than the federal government. I know what I'm doing."
But Haberle is not your ordinary investor. In fact, when it comes to managing money, studies done by a leading human resources firm to track the financial acumen of the masses show that most Americans don't know what they are doing. That's a big negative for Bush, whose plan is based on his belief that most Americans want to, and are capable of, building a profitable portfolio made up of stocks and bonds.
"I have a Ph.D., have belonged to an investment club for 10 years and have studied the market — and even I have invested badly over the years," says Marjorie Abrams, 67, a retiree from Gainesville, Fla. "What will those who don't understand the market do with their savings? How much time can they be expected to devote to it?"
Certainly not the long hours logged by professional Wall Street analysts, traders and money managers. Research confirms that a huge swath of U.S. workers have little or no interest in serving as their own personal portfolio managers.
Six out of 10 Americans (59%) think it is a "bad idea" for the government to let workers invest some of their Social Security taxes in stocks and bonds, according to a USA TODAY/CNN/Gallup Poll done Friday-Sunday. Nearly one-quarter (23%) said they are "uncomfortable" with the idea of managing their own investments, and just 27% said they pay "a great deal" of attention to their investments. (Related: Social Security, Medicare solvency not getting any better.)
A study by Hewitt Associates that analyzed the 2003 investment behavior and account activity of 2.5 million employees eligible for 401(k) plans exposes a trove of investment mistakes by average investors:
•Three out of 10 employees eligible for 401(k) plans don't participate, Hewitt says. That means investors are passing up free money in the form of matching contributions from their employers.
•Despite horror stories about employees at scandal-scarred companies such as WorldCom and Enron having their 401(k) accounts wiped out because they had all their money riding on their own company's stock, 27% of 401(k) investors still have more than half of their money in their employer's shares.
•And proving that investors are hardly hands-on, only 17% made 401(k) transfers in 2003.
Another Hewitt study, done in fall 2004 with Harvard University and the Wharton School at the University of Pennsylvania, found that a "non-saving mentality" persists. The study focused largely on "low savers," those who do not stash enough in their 401(k)s to earn the company match. When "low savers" learned they were passing up $1,200 a year in matching contributions, one-third said they intended to raise their savings rate. Only 15% actually did.
No doubt, there are lots of people who consider themselves savvy investors and think, as Bush suggests, that they can earn bigger returns managing a slice of their own Social Security money. But there is a far larger, more vocal group that views stocks as a tough way for amateurs to make money.
One investment adviser who has seen many investors make costly mistakes says privatizing Social Security would have "catastrophic" consequences. "The general public tends to play up their investing success while ignoring the lessons of their losses," says Christopher Harriman Dann of the Olson Dann division of LaSalle St. Securities. He says nine times out of 10, investors' long-term performance lags behind the market by a wide margin.
A study released in April 2004 by Dalbar, a financial services market research firm, confirms Dann's theory. The research, which analyzed mutual fund money flows the past 20 years, found that the Standard & Poor's 500 index had annual gains close to 13% during that period; the average investor earned just 3.5%.
"Keep Social Security the way it is," says Fred Berlack, 61, of Oceanside, Calif. "The average Joe has little or no investing skills."
2000 collapse changed minds
How one views Bush's plan to create personal Social Security accounts depends partly on one's view of the stock market. Indeed, the stock market slump from 2000 to 2002 that wiped out $8.5 trillion in market value, according to Wilshire Associates, sapped the confidence of many do-it-yourself investors. It turned them off of the stock market, made them more risk-averse and confirmed what some experts have been saying for a long time: Most mom-and-pop investors are not cut out to manage their own money.
"The typical 401(k) investor is a much different animal than someone who opens an account with a broker and makes a decision to be an active investor," says Lori Lucas, Hewitt's director of participant research. "Most investors don't feel they're up to the challenge."
Bob Pozen, chairman of MFS Investment Management and a member of the presidential commission formed to address Social Security reform, says concerns about investors not being smart enough to manage their own money "are overblown." Even though the Bush administration has not yet issued a final proposal, Pozen stresses that investors will likely not be inundated with a dizzying array of choices.
Many experts such as Lucas say it is important that any plan put forth be simple and essentially mistake-proof. They recommend a short menu of options and say a plain-vanilla balanced fund with a pre-determined mix of stocks and bonds based on one's age would make the most sense. In addition, balanced funds would serve as a relatively low-risk default option for people who don't want to make their own investment decisions.
There are growing signs that do-it-yourself investing is not everybody's favorite pastime, including:
•Falling participation in Washington state's hybrid plan. In 1996 and 1997, when the bull market was in full swing, Washington gave its teachers an option of staying in the traditional pension plan or switching to a hybrid pension plan — 50% of assets in a traditional pension and 50% in a private account. Seventy-four percent opted for the hybrid plan. But when public employees were offered the same choice in 2002 and 2003, after the slump, only 11% chose the hybrid offering.
In a further sign of how reluctant investors are to go it alone, the teachers union has a bill before the state Legislature to make the hybrid plan, now mandatory, optional for new employees. Since the hybrid plan for public employees went optional, only 5,400 of the 37,000 new members, or 15%, selected the hybrid plan, says Washington state retirement director John Charles.
"I'm sure the market was a major factor," Charles says. "The feeling prior to 2000 was the market was always going to go up. Our members thought they could get better returns than the professionally managed pension funds. But now they don't want to take on the risks of investing themselves."
•Lower returns for do-it-yourself pension investors. Nebraska, which pioneered private accounts for public employees in the early 1960s, scrapped the accounts for new hires in 2003 after a study that showed returns on individual accounts were lower than those posted by professionally run state pension programs. Replacing them: a cash-balance plan run by pros with a guaranteed 5% return and the potential to earn more.
The state is basically shifting back toward traditional pensions, says Anna Sullivan, executive director of Nebraska's Public Employees Retirement Systems. "Frankly, people have too many other things to do than manage money. They are busy working and taking the kids to soccer games and Cub Scouts."
•401(k) money left on the table. One theory as to why people don't invest in 401(k) plans is they can't afford it. But a study co-authored by Harvard University Ph.D. candidate James Choi found that "ignorance" and "procrastination" may be more to blame.
The fall 2004 study found that 66% of workers over 59½ who don't participate in their 401(k) — people who could stash money in their 401(k) and yank it the next day without penalty — still said they didn't plan to ever sign up.
"These people basically had free money available to them but didn't take advantage of it," Choi says. "It is akin to walking past a $100 bill and leaving it on the sidewalk."
•Frequent mistakes by investors in the federal government's Thrift Savings Plan (TSP). The simplicity and success of TSP, a retirement savings plan available to federal employees that offers five investment options, is often cited as a model for Social Security. The theory is that if people are given a small menu of diversified, plain-vanilla investment choices, they will be less likely to make mistakes.
Not true, says Kathy Bostjancic, senior economist at Merrill Lynch, who found that many TSP investors "unwisely" shifted assets into stocks near the market peak in 2000 and had too little in stocks at the bottom three years later.
"The president's plan to privatize Social Security ... suggests that if you empower people, they will take initiative, have more investment dollars in their own name, and have a bigger stake in the future of the United States," Bostjancic says. "And that is OK if people feel they are capable of investing their own money. But our research shows that people don't feel comfortable managing their own money."
Going to the pros for advice
That might explain the growing preference for financial advice. In 1995, 21% of new mutual fund sales were direct transactions between the fund company and retail investors. In 2003, that number dropped to 13%, according to the Investment Company Institute. In contrast, sales through financial advisers rose from 59% in 1995 to 65% in 2003. ICI data also show that 71% of fund investors tend to rely on the advice of a professional when making decisions to buy and sell funds.
Underscoring how some individuals need their financial hands held, a survey conducted six months ago by Hewitt found that one-third of the 621 respondents didn't know what investments were available to them in their 401(k) plan. And only 2% said they believe they are "very knowledgeable" about investing.
Proponents of Bush's proposal, which would give workers 55 and younger the option of diverting a portion of their Social Security payroll taxes and opening an account in their own name, say it has clear benefits.
Federal Reserve Chairman Alan Greenspan backs private accounts, saying they would bolster the savings rate and serve as a wealth-building vehicle for less-affluent Americans. Private accounts also would give workers an opportunity to earn larger returns than the current system and help build wealth that can be passed on to heirs.
So why aren't more Americans excited? "People are suffering from cognitive dissonance," says Woody Dorsey, president of Market Semiotics, which studies how psychology drives investment decisions. "People probably like the idea of controlling some of their money, but at the same time they don't trust their ability to invest."
If so many people had not lost so much money when the bubble burst in 2000, Bush's push to create private accounts might be garnering more support.
"Timing is everything," says Bob Barbera, chief economist at ITG Hoenig. "There would have been more broad-based support back in 1997, 1998 and 1999, when everyone and his sister was watching TV to find out what Internet stocks to buy, and 30% was considered a good return for low risk."
Of course, had Bush's bold plan been enacted during the heady '90s, many new accounts likely would have slipped into the red once the stock market turned south in March 2000.
Therein lies the problem. The worst stock meltdown since the Depression era gave people a greater appreciation of the emotional and financial value of a safety net, a powerful concept that fostered the creation of Social Security back in the 1930s.
"Everyone knows you do better in stocks over the long run, but in moments of despair it can be helpful for an economy and its citizens to know there is something that's not at risk," Barbera says.
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