Social security has issues. Cutbacks to it are expected to begin in 16 years and recipients are forecast to receive only 3/4 of what they expected. So you can imagine my shock to find out that the Social Security Fund is precluded from investing in stocks! I’m a Chartered Financial Analyst, the highest certification for investment management and valuation. Many years ago, stocks were considered risky and bonds safe. Also, back then it was expected there would always be sufficient workers to self-fund the social security fund. Hence, there was no reason to take much risk at all. So back then investing in bonds made sense.

Since then, however, things have changed. Starting about 10 years ago or more, bonds became almost as risky as stocks. To the extent that they aren’t viewed as safe; rather, they are viewed as having different investment characteristics than stocks. Which is why even the youngest investor, with the longest time frame, should still be invested in bonds.

So just how bad has the Social Security fund underperformed most investors? Stocks have returned 49%, while Social Security has returned only 17%. A 50/50 blend of stocks and bonds would have performed better than that, while still being viewed as conservative.

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