Thursday, March 10, 2005

Why Private Accounts Won't Increase Private Investment, Part 2

One of the basics of creating a sound portfolio--whether for an individual or a large pension fund--is that part of the portfolio should be so rock solid that one can be assured that it will be there no matter what happens to other investments. This allows the investor to include some riskier securities which, according to finance theory and historical experience, should generate higher returns.
Social Security allows us to take on some investment risk to build for the future. Take away the guarantee and we will all have to reduce the risk in our investment portfolios.
This is another reason why Bush's privatization won't increase investment in equities.


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