In 1981, financial
investment firms began to offer 401k plans that offered fixed earnings based on
10% returns on debt investment.
Inflation was high and most 401k participants kept their investments in
fixed until returns dropped to 5% as inflation eased in the late 1980s.
The S&P 500 Stock
Index was 580 in 1990 and climbed to 800 in 1995. It rose to 2245 in 2000,
dropped to 885 in 2009 and recovered to 2240 in 2017. It rose to 2856 in 2019.
The money we invest in
stocks goes to the investment firm to purchase stocks based on the stock
purchase plan we signed up for. The Investment firm buys the stock and sends
our money to to companies. The companies deposit the money and use it as
working capital that allows them to maintain their cash-flow and pay their
expenses. This allows companies to avoid borrowing and paying interest costs.
The New York Stock
Exchange was established on Wall Street in 1792 by 24 stock brokers. Stock was
purchased by individual investors using stock brokers to make the purchases.
Investors received stock certificates.
TIAA was founded in
1918 as Teachers Insurance Annuity Association.
Vanguard was founded in 1975 and the 500 Index was established in 1976.
Prior to the availability of 401Ks, individual stocks were purchased through
brokers.
US inflation and
interest rates have been low for decades as stocks have outperformed fixed
rates. Stocks go up and down like a roller coaster, but they offer the best
returns. Funding retirement requires a combination of Social Security benefits,
401K balances and home ownership.
Norb Leahy, Dunwoody
GA Tea Party Leader
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