Friday, March 31, 2017

Reforming Investment Infrastructure

Pension Plans that are based on the “defined benefit” model need to be replaced by savings plans based on the “defined contribution” model.  Government employee pensions are unsustainable and government employees need to have their Pension Plans terminated.  Their “vested amounts” can be rolled over to “defined contribution plans”.

Pension plans could shed their poorly performed investing responsibilities if they would terminate their plans and set up individual, self-directed accounts.

The landscape for investing has been contaminated by Fed imposed interest rates that prevent the return to market-based interest rates. Interest rates will remain low until the US Congress reduces government debt. Congress needs to reduce the national debt from $20 trillion to $5 trillion and reduce unfunded liabilities from $100 trillion to under $5 trillion. This would require an end to socialism in the US and that’s a good thing.

Families have based their savings strategies on investments in hard assets like home ownership, Home equity is the last bucket of savings for most families. Taking out a 15 year mortgage will accelerate home equity and reduce interest costs. Retirement planning has included Social Security and funds invested in 401K plans and other employment based plans.

Paper Investment choices have traditionally included stock ownership and fixed investment or debt. The safest place for stock investment remains with the low administrative cost Index Funds like the Vanguard 500. It rises, falls, crashes and recovers and the best thing to do is ignore the ups and downs and just keep investing in it.  Stocks go up and down to benefit day traders who want to buy low and sell high.

Social Security is based on the “defined benefit” model and will need to be reformed or replaced with individually owned retirement accounts. There are lots of problems with this and reforming Social Security will take decades.

The first step in this process is to cut government spending to 90% of expected tax revenue to end all deficit spending and begin to reduce the national debt from its current $20 trillion to an affordable $5 trillion.  This should require the US federal government to reverse its expansion and cease to interfere with unconstitutional activities. 


Norb Leahy, Dunwoody GA Tea Party Leader

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