Item — HN Reader

" The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough."

But the evidence actually shows that a better returns can be had with stocks than cash (bills). Even with rates at 4%, stocks way outperform cash:

http://www.skepticmoney.com/wp-content/uploads/2011/05/1802-...

Putting cash into a bank is a poor way to save for retirement, if past performance is any clue.

The 'hardworking person' saving for retirement by stashing all his money in the bank may more myth than reality.

The majority of Americans have little savings, so the difference between 0% rates and 4% is immaterial if your expenses exceed your income.

http://www.gobankingrates.com/savings-account/62-percent-ame...

The problem is not that interest rates are too low, but rather people suck at personal fiance. But on the other had, the Paradox Of Thrift suggests that it's 'good' for the economy that too people don't save too much.

Those who have more wealth put it in stocks, bonds, or index funds. They seldom keep it in cash.

1 comments

Those who have more wealth put it in stocks, bonds, or index funds. They seldom keep it in cash.

How old are the people? All I can give you is anecdotal evidence of quite a few older people I know. People aged between 50 and 80. Many have the bulk of their money in bank deposits. Quite a few people don't own a single stock or mutual fund. That's today.

And if you go back perhaps 50 years, then hardly anyone invested in stocks. The vast majority of people kept money in the bank or in real estate (their house or farm). I'm of course not talking about millionaires, I'm talking about average middle class people.

Would they have been smart to have more in stocks? Of course, but that's hindsight.

Even now I don't blame anyone for staying away from equities. In October 2007 the S&P 500 hit 1576. Then it bottomed at 666 in March 2009 (hard to forget that number!). Now it's 2056. It's easy to overlook that volatility if you have a steady six figure income. But when you're retired, when you'll never earn another dollar of income in your life, you tend to be more cautious.

I personally have almost all my money in equities and in real estate. Nothing in bank savings. But I'd never try to talk anyone into taking money out of the bank and putting it into the stock market. If they make money, they think they're geniuses. If they lose money, I'm a schmuck for giving them bad advice!