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.
‘The Big Money Show’ co-hosts discuss buy now, pay later spending options and the impact it will now have on your credit score.
Small, everyday purchases like a meal from DoorDash are now able to be financed through eat now, pay later options — a practice that some experts deem “predatory.”
“You’ve got to have enough sense to not follow the urge to finance a taco, okay? You have got to be an adult,” career coach Ken Coleman told “The Big Money Show,” Wednesday.
“This is predatory, and it’s going to get a lot of people in deep trouble.”
RISKS OF BUY NOW, PAY LATER: ‘TICKET TO OVERSPENDING,’ EXPERT SAYS
DoorDash and Klarna are now partnering up to extend buy now, pay later options to consumers. (Reuters, Getty / Getty Images)
Financial wellness experts are continuously sounding the alarm to cash-strapped consumers, warning them of the devastating impact this financial strategy could have on their credit score as some lenders will begin reporting those loans to credit agencies.
Consumers may risk getting hit with late fees and interest rates, similar to credit cards.
“So your sandwich might show up on your FICO score, especially if you pay for it late,” FOX Business’ Jackie DeAngelis explained.
EXPERTS WARN HIDDEN RISKS OF BUY NOW, PAY LATER
Major players like Affirm, Afterpay, and Klarna have risen to prominence at a time when Americans continue to grapple with persisting inflation, high interest rates and student loan payments, which resumed in October 2023 after a pause due to the COVID-19 pandemic.
Ramsey Solutions personal finance expert and ‘The Ramsey Show’ co-host George Kamel discusses the ‘buy now, pay later’ craze and the trend that celebrates the financial benefits of being childless.
“The Big Money Show” co-host Taylor Riggs offered a different perspective, suggesting that company CEOs have a “duty” to attract as many customers as they want.
“Unfortunately for me, this always comes down to financial literacy — which I know is so much in your heart about training people to save now by later,” she told Coleman, who regularly offers financial advice to callers on “The Ramsey Show.”
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Coleman continued to come to the defense of financially “desperate” consumers, arguing that companies are targeting “immature” customers.
“I’m for American businesses being able to do whatever they want to do under the law. That’s fine. But let’s still call it what it is: it’s predatory, and they know who their customers are,” Coleman concluded, “And I’m telling you, they’re talking about weak-minded, immature, desperate people.”
FOX Business’ Daniella Genovese contributed to this report.
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