April 10, 2003

PERSPECTIVES
Investing for the (Really) Long Term
With the dot-com boom and bust, we have seen how quickly people can make and lose tons of money. Now, after a couple years of gradually consistent losses - a look at CNN Money's top 100 mutual funds shows year after year of negative returns, and barely positive 5-year returns - many Americans eye their 401k plans with suspicion if not all-out anxiety. How much should we worry about our retirement? A quick glance at a graph of the major stock indices since 1930 reveals that between 1963 and 1985, a 22-year period, the Dow Jones Industrial Average remained nearly flat. The S&P 500 fared only slightly better. Could we be in for another long, plateau period? Nobody knows. But looking at this graph should make us wary of arguments to "privatize" Social Security. We certainly wouldn't want to be the ones who invested during the plateau and find ourselves in the position of liquidating our 401k before the next boom, with little or nothing to show for it.