“Despite many ominous headlines suggesting that Social Security will no longer be part of their financial future, numerous Americans may be underestimating its potential value, according to renowned investor Charles Ellis. He believes that Social Security could play a more significant role in portfolio success than it is currently given credit for.
Ellis, a pioneer in the index fund space and author of several investing books, maintains that the consistent income stream from Social Security can influence asset allocation choices, thereby enhancing overall performance. He pointed out to CNBC’s Bob Pisani on “ETF Edge” that the substantial asset that is Social Security is often overlooked as it is not regularly measured or quantified.
Ellis further argues that Social Security operates much like an inflation-protected bond, but is seldom incorporated into investor asset allocation plans. Ignoring Social Security could be a costly mistake, according to Ellis, author of finance books like “Winning the Loser’s Game” and his latest offering, “Rethinking Investing – A Very Short Guide to Very Long-Term Investing.”
He warns investors not to underestimate the potential of Social Security, estimating that they could receive between $250,000 and $350,000 through the program. He believes that failure to recognize this could result in overly conservative investment strategies.
According to data from New York University Stern, the S&P 500 has averaged roughly 12% annual returns since 1928, while the U.S. 10 Year Treasury has returned about 5% over the same period. Ellis maintains that the steady income from Social Security allows for increased exposure to stocks.
He compares the future receipt of Social Security benefits to the expected inheritance from wealthy parents, urging investors to consider these known values in their financial planning to avoid an overemphasis on fixed income. Ellis encourages investors to include Social Security in their financial planning considerations.”
