The heated rhetoric between the presidential candidates over Social Security is intensifying. George W. Bush and Al Gore do differ significantly when it comes to Social Security reform. Still, it's intriguing to note that the rivals agree on using the Social Security system to encourage greater stock ownership.

Think about it. Bush's privatization plan offers younger workers the option of diverting a portion of their payroll taxes into the financial markets. Gore's proposal would create an IRA-like account, the so-called Social Security Plus. Right now, about half of U.S. households own equities. No matter who is elected president, that percentage is bound to increase in coming years.

Equities are a terrific investment. Still, the promise or expectation of lush stock market returns over the long haul is often exaggerated. Yes, stocks have clocked an average annual return of 15% over the past ten years. But that spectacular performance is about double the long-run norm. The odds are that stocks won't rise at a comparable double-digit pace over the next ten years.

Even more sobering, timing is everything when it comes to calculating your stock market gains in dollars and cents. No, I'm not a convert to market timing. A buy-and-hold strategy beats out any of the alternatives over any length of time. But the monetary value of your stock portfolio greatly depends on when you got in to the market and when you cash out.

Take this calculation drawn from a recent paper by Gary Burtless, an economist at the Brookings Institution. A worker retiring in 1969, who had invested all his retirement money in the stock market for 40 years, could receive a pension worth nearly 100% of his pre-retirement income. Another worker, following the same investment strategy yet retiring six years later, would receive only 42%.

This year's stock market decline isn't pointing to a recession next year. But the drop may be a warning that the era of double-digit returns is over for now.

 


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