The volatility should also raise cautionary public policy questions about proposals to partially privatize Social Security and allow workers to invest a fraction of their payroll tax in the stock market. The privatization idea is often pitched as a way that workers can earn lush stock market returns on some of their Social Security dollars. Yes, some two centuries of U.S. stock market history suggests that the risk of owning equities compared with that of bonds and bills shrinks with time. But the risk associated with owning equities doesn't disappear. To say that stock returns beat out bonds and bills over the long term implies that bonds and bills can do better than stocks for lengthy periods.
Financial history confirms that insight.
For instance, bonds outperformed stocks from 1831 to 1861, a 30-year period that spanned the invention of the reaper by Cyrus McCormick to the beginning of the Civil War. From 1870 to 1900, stocks were bested by railroad bonds and did no better than commercial paper, according to Jeremy Atack and Peter Passell in A New Economic View of American History. Another telling and more recent example comes from a study by Steve Leuthold, a well-known portfolio manager and market historian. The comparable calculation from the 1929 peak was 15 years, and the average catch-up period was five years and one month. What's more, Social Security may be considered the low-risk portion of a person's portfolio.