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FICA may go to market
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July 17, 1996: 4:31 p.m. ET
Gov't panel may recommend investing Social Security funds in stocks
From Contributing Editor William S. Rukeyser
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NEW YORK (CNNfn) -- Investors who want a reason to smile through the stock market's recent tumbles may soon have one. A federal advisory panel is expected to report this summer that some of the $400 billion in Social Security taxes collected each year should be invested in stocks.
A startling consensus has emerged among all 13 members of a bipartisan advisory panel appointed by President Clinton -- a substantial chunk of the money now collected in Social Security taxes should be invested in the stock market.
That could pump up to $1.6 trillion into stocks over 15 years-- an Olympic-size boost for the market-- and a bet on a proven retirement vehicle.
For 70 years, stocks have returned an average of 7.25 percent a year, after inflation. That's three times the gains on corporate bonds and four times the return on long-term Treasury bonds.
The money from Social Security might buy 10 percent of all U.S. equities. One debate is over who should choose the investments.
Appointing a new set of federal portfolio managers would give the government vast new powers over private companies.
So brokers are betting that the choice will be left to the individual taxpayer who could allocate the money much like funds in a 401(k) retirement account. That excites the securities firms.
Donald Straszheim, Merrill Lynch's chief economist explained: "We will likely see many of these investors who are really quite small investors, perhaps putting only $200 in. But small amounts become large amounts. Securities firms will court these people in any way they can," he said.
Even a Wall Streeter can admit that not every American wants to become a stock picker just yet.
Straszheim added, "I think the issue of risk is a very important one. Those investors who are afraid of the equity markets surely won't have to invest in equities. They can buy Treasuries just like Uncle Sam has been doing for them, in some sense, all along."
But there's risk in settling for low bond yields, too. That risk, as the advisory panel concluded, is that the system may not produce enough cash to fully fund everybody's pension. 
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