Tough time to sell mix of stocks, Social Security

When Ed Skiba first heard President Bush's idea to augment Social Security with investments in the stock market, he was skeptical.

Now, with market averages down from 14 to 64 percent since last March, the resident of Tarrytown, N.Y., is sure it's not a good idea. "Scary," he says.

As the president begins to try to sell a key part of his campaign platform, he'll need to convince voters like Mr. Skiba that investing even a small percentage of their Social Security in the market is the right thing to do.

Mr. Bush will likely get some support for his side of things this fall, when the bipartisan Commission to Strengthen Social Security issues its final report. It is likely to include a recommendation that individuals be allowed to augment their Social Security with investments in the stock market.

A recent draft of the report, in fact, says the only way to save Social Security "is to provide opportunities for individuals to save money for their retirement."

Although the commission's report will soon set the stage for a national debate, Republicans don't expect the White House to introduce the Bush proposal early next year. "The plate is full, and it's very difficult to find time to debate it this year," says Rep. Sam Johnson (R) of Texas, a key member of the House subcommittee on Social Security. But he adds, "It will have to be early next year, not late, because it's an election year."

The delay could be advantageous for Bush, because most investors are staring at red ink this year. According to the Washington trade group Investment Company Institute, the net assets of stock funds declined by $67.95 billion in June and are down more than $470 billion for the year - the worst percentage drop since the mid-1970s.

Despite this drop, however, investors have yet to panic and pull out of the market. One sign of this would be investors selling their mutual funds and moving into cash.

But so far, mutual funds have only experienced negative cash flows in two months - February and March. "It seems they are still sticking to their investment goals and strategies," says Chris Wloszczyna of the Investment Company Institute.

While investors may be keeping some of their funds in the market, they are losing their appetite for investing Social Security retirement funds in the market, according to AARP, formerly the American Association of Retired Persons, which tracks public opinion on the issue through polling. "There has been a large erosion of support since last year," says John Rother, director for legislative and public policy.

Fifteen months ago, Mr. Rother says, the NASDAQ average was at its peak. Many young people, and their stock brokers, had never seen a down stock market. "There was an expectation you were always going to get a 20 percent return in the market," he says.

But even with the market soaring, older Americans were opposed. "The older population has seen the ups and downs, and they weren't ready to accept that," Rother adds.

California Rep. Robert Matsui, the third-ranking Democrat on the House Ways and Means Committee, says some concern over the vagaries of the market is showing up in phone calls and e-mails to his office. Mr. Matsui, who is opposed to Bush's plan, says news reports of the president's commission has sparked much of the response.

"They may have done us a favor - they joined the issue," he says. "Most of my mail is from people opposed to it," adds Matsui, who represents the Sacramento area.

Lawmakers will get a better idea of where their constituents stand when they begin their August recess this week. "We'll be discussing it. We do nearly every time we go back," says Representative Johnson, who notes that he has not heard much criticism about the proposal from his voters. "And I've got a fair-sized retirement community in my district," he says.

Yet a range of opinions were apparent in a recent pass through New York's Grand Central Station. Maria Aulbach, of Queens, says she has invested in the market in the past - and got "scared," in a good way, when she saw how much money she was making. "I felt like I was stealing money," she says, endorsing the idea of investing some Social Security in the market. "I like the idea of the freedom to chose."

Kenneth Parkin, an employee of the New York Public Library, says he believes investing some Social Security in the market might not be a bad idea since he thinks investors have made an average of 10 percent per year on their money over the long term. "I think there might be a matter of timing - you need to know when to cash out," he cautions while waiting for a train.

Investing is fine if it's done over the "long haul," agrees Clarence Jones, who works in human resources at Dow Jones & Co., the financial publishing company. He is concerned, however, about the possibility of such investing being unfair to minorities. But he thinks the concept is generally a good idea, since "something has to be done to fix Social Security."

Yet Stanley H. Brown, a retired financial journalist, says he's skeptical about the people who may run the program. "Who will decide where the money's going?" he asks, noting how many sophisticated people have lost their money in the past. "With all due respect," he says, "how can you trust a stock broker?"