| |
|
|
The Basics
How 7 experts would invest Social Security cash
We asked 7 experts how they might set up the investment options if private Social Security accounts come to pass. The common theme: Keep the choices simple and safe.
By MSN Money staff
So, let's say President Bush gets his way and Social Security private accounts become a reality. How should you invest your money?
That's the question we put to seven investing experts, including several of our columnists and contributors.
While the debate has focused on whether private accounts are a good idea at all, increasing attention has been paid recently to the investing options that might be offered under such a plan. President Bush said in his Feb. 2 State of the Union message that he sees a "conservative mix of bonds and stock funds"; opponents say that any plan that relies on the stock market to fund individual retirements is an unnecessary risk to the Social Security safety net.
Bush has yet to lay all his cards on the table, and there's no telling what a compromise plan might look like. But if the accounts become a reality, workers in this country -- many of whom have little or no investing experience -- could face a head-spinning set of choices. And that's for money designated to fill a crucial gap in their retirement funding.
We asked our experts two questions: - Are you in favor of Social Security private accounts?
- Given free rein to choose their options, what do you think would be the best way to invest any private account dollars?
Scrubbing bubbles from private accounts
Ron Roge, president of investment advisor R.W. Roge & Co., Bohemia, N.Y.
Yes: Provided they can put restrictions on how people invest, so we don't have people chasing Internet bubbles.
How to invest: You probably want to use mutual funds rather than individual securities. We have dozens of funds on our recommended list, but a few good choices might be the Dodge & Cox Balanced (DODBX) fund, the Oakmark Equity & Income I (OAKBX) and Oakmark Global I (OAKGX) funds and Vanguard's index funds.
The ownership society, government-style
Donald Luskin, chief investment officer of Trend Macrolytics in Menlo Park, Calif. He is also a participant in MSN Money's Strategy Lab competition.
Yes: The accounts give everyone a chance to own a piece of America -- and to expect high returns in the process.
How to invest: The options under the reform plan will probably look a lot like those offered by the 401(k) plan that now serves more than 3 million federal government employees. It has index-based options: an S&P 500 Index ($INX) fund, a small stock index fund, an international stock index fund, a bond index fund and a money market account.
So forget about speculating in pork bellies. This will be an opportunity for prudent long-term investing. When youre young, it should all be in the stock funds. As you get older, gradually start moving some into the bond fund and money market account. Its really that simple -- and thats exactly why it will work successfully even for Americans who have never invested before.
Invest in the investors
James Dlugosch, editor of The Rational Investor newsletter and president of TRI Advisors in Minneapolis. He is also a participant in MSN Money's Strategy Lab competition.
Yes: The plan prepares taxpayers for the ultimate reality of benefit cuts.
How to invest: If we actually see private accounts, I expect certain sectors of the market to benefit, financial services in particular. Within that group I am attracted to private money managers such as Affiliated Managers Group (AMG, news, msgs) and Janus Capital Group (JNS, news, msgs). I also am attracted to discount brokers -- which will see increased activity as investors use private accounts -- including E*Trade (ET, news, msgs) and Ameritrade (AMTD, news, msgs). Investor educator Investools (IED, news, msgs) could also see its sales jump.
Limit investor options, buy Vanguard funds
Daniel Wiener, editor of "The Independent Adviser for Vanguard Investors," Brooklyn, N.Y.
No: I'm not sure anyone has made a strong case that the system is in trouble.
How to invest: Given the experience people have had investing their 401(k) plans and the poor choices they've made, I wouldn't give them options: Just a balanced fund, take it or leave it. Personally, I'd want 5,000 funds available to me. But I don't think that's right for almost anybody else. If forced to narrow the list, I'd want a mid-cap fund, because there are great companies at good prices because they're ignored by Wall Street; a foreign fund for diversification; and a health-care fund to take advantage of the aging population. More specifically: Primecap Odyssey Aggressive Growth (POAGX), Vanguard Global Equity (VHGEX) and Vanguard Health Care (VGHCX).
For the bold, some safe stocks
Michael Brush, MSN Money columnist.
Yes: Without a doubt, a great way to shore up the system.
How to invest: Four suggestions: First, for people who truly dont want to have anything to do with learning about the markets, I'd suggest all-market index funds. Second, for the more venturesome, Id recommend conservative plays in companies with strong financials and decent long-term prospects. A few current examples: Home Depot (HD, news, msgs), American Express (AXP, news, msgs), Wal-Mart Stores (WMT, news, msgs), IBM (IBM, news, msgs) and Exxon Mobil (XOM, news, msgs). Third, look for companies with a long history of increasing dividends. A few companies that have increased dividends by more than 10% a year over the past decade: Bank of America (BAC, news, msgs), Citigroup (C, news, msgs) and Caterpillar (CAT, news, msgs). Finally, in place of utilities, the old-school conservative bet, I'd suggest Master Limited Partnerships (MLPs). These are investment vehicles where buying a share makes you a limited partner with a claim on the cash flows from the partnership. The two biggest MLPs are Kinder Morgan Energy Partners (KMP, news, msgs) and Enterprise Products Partners (EPD, news, msgs).
Keep Wall Street out of it
Tim Middleton, MSN Money mutual fund columnist.
Yes: The alternative is sharply higher taxes or reduced benefits.
How to invest: That assumes the plan is modeled on something simple and economical, like the government's thrift plan. If it's opened up to annuities and becomes just one more bone for Wall Street to fight over, however, it will be a disaster. I'd recommend the Vanguard Total Stock Market Index Fund (VTSMX) for young investors, the Vanguard Balanced Index Fund (VBINX) for middle-aged people and 35% stock-market index, 45% Vanguard Total Bond Market Index (VBMFX) and 20% cash or Treasury bills for those approaching retirement.
For safety, forced diversification
Bob McCarthy, president of pension-plan consultant Kanon Bloch Carré, Boston.
Yes: In the long term, participants will be better off.
How to invest: I'd like to see a program with prescribed asset allocations so participants aren't over-concentrating their assets in one area. There should be value and growth stocks, large and small stocks, internationals and domestics. And there should be a sliding scale so younger people could be all in equities and older people could have a 30%-70% split of bonds and stocks. Any particular fund I would recommend now would not be one I would suggest in four or five years.
|
|
|
|
