The retirement problem

There is a nice article in the Washington Post about retirement savings. The article essentially argues for socialization of the retirement problem. Which is the wost possible solution.

Investors earn poor returns because they have very little understanding of stocks and mutual funds and do not have even motivation or inclination to do something about it. Mot average investors have no understanding of investment basics. People spend more money on their cable or cellphone bill per month than they spend in a year on educating themselves about how to invest.

The main point of the article are:

• We don't save enough and we don't invest very well
• Average American saves less than 5% of current income.
• Average rate of return on stocks from 1871 to 2008 is 6.3%
• But most people do not get that kind of returns
• Because people investing in stocks do so through mutual funds and average mutual fund under performs the market
• Mutual fund managers after fee have poor returns
• Investors compound the problem by chasing returns in mutual funds.
• According to the authors mutual funds tend to exhibit mean reversion.
• As investors chase returns, they tend to move in to funds at wrong time , that is one of the reason they under perform funds.
• So what can investors do, save more and invest better.