Finance
Investors are thinking about Social Security income the wrong way
Based on a lot of the recent dire headlines, many Americans may have come to think of Social Security as an asset that is going to disappear from their financial future rather than be part of it, but it may be a bigger factor in portfolio success than it gets credit for, according to investing legend Charles Ellis.
The steady stream of income provided by Social Security can influence asset allocation decisions that improve overall performance, says Ellis, who has written many books on investing and helped to pioneer the index fund space.
“We don’t talk about it. We don’t measure it. We don’t quantify it. But it’s a substantial asset,” Ellis told CNBC’s Bob Pisani on “ETF Edge” this week.
He argues Social Security functions similarly to an inflation-protected bond. Yet, it is rarely factored into investor asset allocation plans.
Overlooking Social Security can be a big mistake, said Ellis, whose books on finance include “Winning the Loser’s Game,” and whose new book is “Rethinking Investing – A Very Short Guide to Very Long-Term Investing.”
“Be very surprised if you don’t have something on the order of $250[000] to $350,000 coming your way through the Social Security program,” Ellis said on “ETF Edge.”
Failing to recognize this can lead to overly cautious investing, he added.
The S&P 500 has averaged around 12% annual returns since 1928, according to New York University Stern. The U.S. 10 Year Treasury has returned just about 5% over the same time period.
Ellis says Social Security’s steady income stream allows for greater stock exposure.
“Almost anybody looking at the reason for holding bonds talks about the desire to reduce the fluctuations,” he said.
He gave the example of an inheritance that an adult child expects as a parallel thought experiment. “If you have wealthy parents that are going to give you an inheritance in the future, any of those things that you really know are valued, why not include them in your thinking so that you won’t overweight yourself in fixed income?”
“Why not include [Social Security] in your thinking?” Ellis said.
Stocks making the biggest moves after hours: ANET, BMBL, CDNS
Bill Ackman raises bid for Howard Hughes, says he will turn it into ‘modern-day Berkshire’
Here’s how to reduce capital gains on your home sale
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics6 days agoDonald Trump wants states and cities to do as they are told
-
Economics6 days agoDefense stocks drop after Trump says Pentagon spending could be halved
-
Economics1 week agoWhat is Elon Musk getting up to with America’s payment system?
-
Economics6 days agoCut debt or face economic heart attack
-
Technology4 days agoReddit CEO Steve Huffman Unveils Monetization Strategy for 2025
-
Economics6 days agoPPI January 2025:
-
Finance1 week agoConsumer Financial Protection Bureau staff to work remotely, HQ shuttered
-
Leaders4 days agoAdebayo Ogunlesi – From Nigerian Roots to Global Financial Leadership