June 13, 2005


County took retirement path less traveled: Galveston plan shuns market for security of bonds and annuities (BRUCE NICHOLS, 6/12/05, The Dallas Morning News)

The men who created a successful Texas alternative to Social Security say President Bush needs to drop investing in the stock market from his plan to privatize the system.

They speak from experience. When they put together a plan for Galveston County employees 25 years ago, then-County Judge Ray Holbrook and financial planners Don Kebodeaux and Rick Gornto started off suggesting that county employees hitch their retirement to the stock market.

"We tested it with a few groups, and they'd stand up and say, 'I'm not putting my money in the market,' " Mr. Kebodeaux said. "We knew then. Forget the market."

Employees considered it too risky, so the planners chose another path.

"We went strictly with bonds and annuity investment," Judge Holbrook said. "Safe as taking your money to the bank. We had that little slogan."

It meant slower growth than riding the market, but it also protected workers from steep declines in the value of their savings, he said. And it led employees to vote 2-to-1 in favor of leaving Social Security. The plan took effect in 1981, and it has operated since with few gripes, Judge Holbrook said.

Which is why you have to take the decision out of peoples' hands and require that such accounts include some percentage of stocks at least when they're young. 25 years ago the market was under 1,000. For the twenty years ending on December 31, 2003--which includes Black Thursday 1987 and the tech bubble bursting--the Dow averaged a 14% return

Posted by Orrin Judd at June 13, 2005 8:57 AM

"We went strictly with bonds and annuity investment," Judge Holbrook said. "Safe as taking your money to the bank. We had that little slogan."

A much easier decision to make when money market rates were in the teens. Today, rates are very low, and are likely to remain so in the future. With the expectation of little inflation, rates will stay low.

In order to acheive higher return on a fixed investment, the options are corporate junk (with much more risk, and more interest rate exposure) or foriegn investments (that regardless of quality, will be interest rate sensitive, and add a currency risk component as well.)

A balanced and diversified age-based portfolio that includes stocks is what makes sense.

Posted by: captmike at June 13, 2005 9:30 AM

Written like a Democrat OJ.

I'd say give them a choice.

Posted by: Genecis at June 13, 2005 11:37 AM

Democrats oppose the choice altogether.

Posted by: oj at June 13, 2005 11:51 AM

25 years ago, yes Mr. Greenspan who doesn't own stock, I believe.

It's my money, why are you allowed to tell me where to put it?

Posted by: Sandy P. at June 13, 2005 11:56 AM


No, it isn't. We've already taken it.

Posted by: oj at June 13, 2005 12:02 PM

Doesn't the Dow average de-list the losers? Doesn't this make that 14 percent return somewhat misleading, as the companies listed in the Dow are not the same from year to year?

Posted by: ted welter at June 13, 2005 1:17 PM

ted: Why? An index fund is supposed to track the market, not just buy what's there and then sit on it...

Posted by: b at June 13, 2005 1:24 PM

Depends on how they feel about spending principal. If they're planning on an annual withdrawal rate of 2%, they might be OK trying to make an all bond portfolio last and beat inflation for 30 years. Otherwise, they're statistically going to "go broke safely" if they don't hold other asset categories (such as equities) that have historically generated greater return.

Posted by: John Resnick at June 13, 2005 1:32 PM

If it's not Sandy's money since you've already taken it, why are you adding insult to injury by pretending to offer her a "private" account? At least the Democrats are honest thieves.

Posted by: joe shropshire at June 13, 2005 2:06 PM

Because it's a better use of the money and, unlike SS, Sandy gets it back upon retirement.

Posted by: oj at June 13, 2005 2:17 PM