In my parents’ generation, most people didn’t need to know how to invest money. They saved modest sums at the bank, but few routinely owned stocks. This question of why we’re all becoming investors is answered on the first page of The Intelligent Portfolio, written by Christopher L. Jones.
You can read reviews of this book at Seeking Alpha, Million Dollar Journey, and the Canadian Capitalist. I found that this book is well written and contains many interesting subjects. However, I don’t always agree with the author. I will be discussing several topics from this book individually over the next while.
It turns out that people are living longer, making retirements much longer. The cost to defined benefit pension plans is skyrocketing. Companies don’t want to pay for these dramatically increasing pension costs. So, pension plans are being replaced with individual retirement accounts.
In Canada these accounts are primarily RRSPs, and in the US they are mostly 401(k) plans. Instead of funding pension plans, many companies now match contributions to individual retirement accounts. Investing the money in these retirement accounts is the responsibility of the individual.
Blaming these changes on the fact that we are living longer is one way to look at things. However, life spans have been increasing for a long time. We have seen this coming. The real problem is that we haven’t made big increases in the retirement age.
Instead of increasing the retirement age from 65 to 75 or 80, we have done very little. In fact, many workers can retire and collect benefits starting at age 60 or 62 if they choose. If the retirement age were 75, pension funds would need much less money and many companies might still have traditional defined benefit plans.
But, increasing the retirement age is very tough politically. How do you tell someone who hates his job and has been planning a move to Florida that he has to work longer? Ultimately it is the voters who are responsible for the fact that we have all become investors.