Losing Sleep Over Social Security Issues? Consider Social Investing

Dire Warning

The promise of retiring with a  government-provided pension such as that espoused by Social Security  seems to be fading quickly. The US government's own admission is dire,  "The Trustees project that the combined trust funds will be depleted in  2034." The idea of these types of pensions was based on a model wherein  employees and employers pay some small amount of their regular earnings  to a fund managed by the government. Upon retirement, the employee  earns a pension income. Unfortunately, the model presupposes that there  are more active employees paying into the fund than receiving benefits.  In light of a continuous baby boom, this may work, but that is not the  case any longer.

  

After  WWII, there was a baby boom which caused a bulge in the population. As  these children aged and entered the workforce, Social Security was  feasible because the math worked. That is, there were more employees  paying in than getting paid out. Now that the baby boomers have entered  their retirement years, the amount being paid exceeds that being  collected by working employees. This is due to declining birth rates  across most first-world countries. In particular, there are less  replacement workers funding the retirees. Add to the fact that like most  government programs, it has been mismanaged and the funds largely  squandered. So as the Social Security Administration admonishes us about  the reality of this massive shortfall, what can a working age employee  do? Is it reasonable to hope that pension money will exist upon  retirement?

It seems prudent that the current batch of employees  take more control of their investments. It sounds like common sense to  be able to manage one's own financial affairs, not only to help prepare  for retirement, but also to grow the portfolio to amass some wealth. The  more that the investor is empowered with knowledge, the better he/she  can decide what to do with the investment capital. But how to get  started?

Taking Control

Well the goods news is that  acquiring knowledge is something that humans have an innate ability to  do. It just takes some time and effort. Today, there are many resources  available to learn about the markets and investing. Ultimately it boils  down to performing some sort of analysis to gather information to help  make more informed decisions.

The first main form of analysis is  fundamental analysis. This is a process that an investor uses to examine  underlying data about an economy, market or specific asset. The idea is  to gauge the value of something based on data such as balance sheets,  income statements, and various other factors such as earnings, debt,  price of asset, etc. Literally, there are a myriad of factors to  examine. Upon compiling the data, the analyst would then determine if  the asset (e.g. stock) is over-valued, under-valued or is fairly priced.  If the asset is under-valued the investor may choose to buy that asset  in some form (e.g. buy some shares). If it is over-valued, perhaps  he/she may choose to short the asset if that is practicable.

The  second main form of analysis is called technical analysis. This  strictly focuses on past price action to predict a possible future  price. A technician will delve into price charts overlayed with  indicators such as moving averages, stochastic and others. In addition,  he/she can examine patterns such as the cup-and-handle, or look at  Elliot Waves to predict where the future price action might  be. There are literally hundreds of indicators and patterns that can be  examined. Again, if a probable price action is expected, the investor  can buy or sell as the case may be.

Leverage Crowd Knowledge

Clearly  the two major avenues for investment analysis can be time consuming.  For any one person to be able to study all markets, every day, with  either method, let alone both methods, approaches the impossible.  Furthermore, it could take years of diligent study to become proficient  in these areas. Fortunately, there is now another option available that  can reduce the time and workload required for any one person. 

This is  called social investing.  Essentially, social investing leverages the crowd and collaboration to  disseminate information which empowers individual investors. The larger  the community, the greater the benefits to the network as more investors  share information. Therefore, more knowledge can be spread and more  time is saved by farming out the work. No longer does one person need to  study bags of markets. Instead, he/she can focus on a small subset and  become really good at analyzing that sphere. When that investor shares  his/her analysis with the community it results in giving others more  decision-making power. In turn the other analysts share their findings  for other assets, markets or economies feeding the broader network. 

As  part of this sharing process, critiques are offered and debated.  Effectively, the community "prunes" away the false and least valuable  information. In the end, everyone constantly has access to good quality  analysis and each investor can specialize in his/her desired market.

Social  networking is now an accepted and vastly used form of communication,  organizing and sharing. Social investing is simply applying this concept  to the markets. If individual investors can find value in sharing  market information and analysis with others in a network, everyone  participating wins. Hopefully, adopting social investing can help many  investors take control of their investment capital and provide a means  to securing a retirement nest egg as well. Consequently, they will not  need to depend solely on government pensions.