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Thought Experiment – What if Social Security Invests in the Stock Market

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A link to an interactive spreadsheet where you can change the % invested, and the start date.

 

This has been an idea that has been kicked around for years – what if the US Social Security Trust invested in the stock market? It is an interesting idea. Indeed there have been a number of papers on the subject. Given the rise of Sovereign Wealth Funds, it is understandable that there would be those who would want to put this money to greater use, earning better returns in this Zero Interest Rate environment.



We have created an interactive sheet to test this idea. At the top, in cell A2, select a percentage of the Social Security Trust surplus assets which should be placed in the stock market. For the purposes of, “the Stock Market” we have used the S&P500 and its annual dividend yield. Our starting year is 1957.  You can adjust the start year by selecting a year from the list in cell A4.

What stands out is that if the trust had invested in the stock market from 1957, it would be in better shape. The $12bn bailout which the trust required in 1982 would have been unnecessary, and total assets would be higher than the current $2.7trn.

On closer inspection, however, it is clear that any later start would have resulted in larger draw-downs, and an more distress for the trust. If the trust put 50% of its assets into the stock market, starting in 1968 (the peak of the Nifty Fifty), the draw-downs by 1982 would have been punishing, and the total surplus would be $300bn greater than current returns drawn from fixed income.

Therefore it is not at all clear that a stock market investment plan will save Social Security. Assets are expected to be depleted by 2033.
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  • Dad Monday, 09 March 2015

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  • Dad Monday, 09 March 2015

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