To no one’s surprise, the AARP has come out against the Bush administration’s plan to reform Social Security. Since last Tuesday, AARP has been running full-page ads in major newspapers warning against adding personal accounts to Social Security.
The most disingenuous ad (so far) appeared last Friday. It shows a thirty-something couple above words that read, “If we feel like gambling, we’ll play the slots.” Clearly, the AARP is betting (pun intended) that enough Americans can be fooled into believing that investing in the stock market is no different from spinning a roulette wheel.
To see how wrong that is, let’s start with some definitions. Merriam Webster defines gambling as, “to play a game for money or property; to bet on an uncertain outcome.” That second part isn’t quite correct. If you gamble on any casino game, you are certain to lose in the long run. Casinos would not be profitable enterprises if gamblers won on average.
But investing in the stock market is nothing like gambling. Statistics show there is no twenty-year period in which the American stock market did not grow — and that includes periods containing the Depression years. Long-term success in the stock market is almost as certain as death and taxes. The right strategy is to diversify, which is defined as “the strategy of investing in a number of securities to help reduce the risk of price fluctuations in one security. This strategy is also applicable to investing in a number of industries (or in the case of international investing — countries) to help reduce the risk of price fluctuations in one industry (or country).” Of course, any stock may fail. Diversifying an investment portfolio insures that growing stocks over time will more than make up for the few that do not.
Comparing stock market investing to gambling is just plain wrong. Indeed, the AARP is engaging in disinformation, which Merriam Webster defines as “false information deliberately and often covertly spread (as by the planting of rumors) in order to influence public opinion or obscure the truth.”
AARP executives must know their advertisement is false. Why? Because the definition of diversification used above comes from the AARP Investment Program website. The Investment Program is in partnership with Scudder Investments, offering the senior lobby’s 35 million members an opportunity to invest in 38 Scudder mutual funds. Members can pick among funds offering government bonds, corporate bonds, and stocks. The stock mutual funds are highly diversified. Almost all have more than fifty stocks and some, like Emerging Markets Growth and the S&P 500 Index funds, number in the hundreds. The returns are pretty nice too, with a lifetime return ranging from 6.4% to 10.7% for funds in existence at least ten years.
Furthermore, according to the site, AARP participants will “Enjoy the benefits of no-load investing. The AARP Investment Program doesn’t charge sales commissions, provides low investment minimums and strives to keep management fees and total operating expenses below the industry average.” If its Investment Program could charge fees to manage Social Security personal accounts, would AARP complain? Wanna bet?
And it’s not just AARP members who prosper under the AARP Investment Program. Although the nonprofit AARP is not required by law to disclose how much money it makes from selling these investments, it probably does well given that the Scudder funds hold over $40 billion in assets.
The AARP position on investing: If you are old enough (over 50) to be a member, AARP gives you access to all sorts of diversified, high-performing mutual funds. Why, you could even invest some of your Social Security check in them! But pity the working-class stiff who would like to invest part of his forced Social Security contribution in a personal account. He’s out of luck. When the AARP does it, it’s sound investing. When you want to do it through a Social Security personal account, it’s gambling.
There is one word for AARP’s position on Social Security reform. It is “a feigning to be what one is not or to believe what one does not.” That’s the definition for hypocrisy.