NCPA - National Center for Policy Analysis

TAKING STOCK OF AARP

April 27, 2005

The group formerly known as the American Association of Retired Persons makes millions of dollars investing in stocks. So why does it think private citizens doing the same thing with their payroll taxes is a risky gamble?

It opposes President Bush's plan for personal retirement accounts as unsafe at the same time it promotes stock and bond investing by selling 38 mutual funds to its members. It seems that as long as AARP gets a cut, investing in the market is fine. But if you do it on your own, you're one step from crushing poverty, says Investor's Business Daily (IBD).

  • Among AARP's stock offerings are far riskier options than what advocates of personal retirement accounts propose: a Latin American stock fund, a junk-bond fund and a fund that holds shares of companies based in such highly volatile markets as Russia and Indonesia.
  • AARP, which collects more than $200 million in dues from 35 million members each year, manages an investment portfolio of $912 million; in 2003, it invested $737 million of its portfolio in stocks and mutual funds, earning returns of $60 million, according to the group's 2003 consolidated financial statement.
  • AARP also collects premiums from members who buy AARP-approved insurance -- before turning over the money to the insurance companies, AARP invests the money in short-term securities -- in 2003, this generated profits of $24 million.

Furthermore:

  • AARP investments in the "risky" market provide a nice return, averaging 7.29 percent a year since 2000.
  • Since 1930, the market as a whole, despite wars, depressions, recessions and terrorist attacks, has averaged 9.4 percent annually.
  • Which explains why, in 2003, less than 8 percent of AARP's portfolio was invested in government-backed securities.

So why doesn't AARP put its money where its mouth is, asks IBD?

Source: Editorial, "Taking Stock Of AARP," Investor's Business Daily, April 27, 2005.

 

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