They Forgot the Turnoff Valve on the Pipelines
Cunniff, John, THE JOURNAL RECORD
You might sometimes wonder what is expected of the American people by those who claim to know the future, such as the government, monetary officials and economists.
Beginning in the early 1990s, Americans were admonished for not thinking more about their financial futures, especially with Social Security supposedly heading for the rocks. They listened, and they responded, directing a flood of money into stocks through their 401(k) plans, and in keeping with the laws of physics and finance the stock market rose mightily.
The future, they were assured, would be a high-tech future, and so they weighted their portfolios heavily with high-tech stocks. And what do you think happened? High-tech stocks soared to the heavens. But now, it seems, the sages are shaking their heads and wringing their hands and saying in effect, "These Americans, they are undisciplined; they carry everything to the extreme."
And so the sages now call for the people to cool it, and multiple warnings are issued daily about the extremes of stock prices and the dangers of things getting entirely out of hand. But, looking back, all that the people did was listen to the sages, conduct themselves accordingly and use the financial instruments recommended. From 1990 through 1998, the number of 401(k) plans rose from 97,614 to 273,485, and the number of active participants from 19.5 million to 36.7 million. Remember, while most 401(k)s are employer-sponsored, many employees also have access to employer-sponsored pension plans as well. And so the nation's pension assets swelled.
By 1998, assets of 401(k)s amount to $1.41 trillion, but that was only 13 percent of the $10.9 trillion U.S. retirement market.Incredibly large totals -- almost twice the size of the national debt -- and building day after day. Understandably, the contributors to pension plans wanted to see their pension funds grow, and understandably they wanted the money to be invested where money grows fastest, which is in stocks. More than 40 percent of mutual funds assets at the end of 1998 were in mutual funds, compared with just 9 percent in 1990. …