It’s risky to bet Social Security’s solvency on the stock market

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Mark Hulbert is a columnist for MarketWatch. His Hulbert Ratings service tracks investment newsletters that pay a flat fee to be audited.

I’ve made this argument before. But it bears repeating because of a recent bipartisan proposal in Congress to fund the Social Security trust fund with the profits the U.S. Treasury could earn by borrowing $1.5 trillion and investing it in the stock market.Read: Social Security’s COLA for 2024 is 3.2%, vs. 2023’s historic 8.7% inflation-fueled adjustment

The accompanying chart plots the cumulative performance of stocks and bonds since 1793, courtesy of Edward McQuarrie, a professor emeritus at the Leavey School of Business at Santa Clara University who has spent years constructing a database of U.S. stock and bond market history. Notice that, as late as 1933, stocks’ cumulative performance since 1793 was below that of bonds. That 140-year period of bond superiority constitutes more than half the 230 years of U.S. market history.

Ignorance is not a good defense, however, especially when trillions of dollars are at stake. And there is no theoretical justification for the December 1925 start date, McQuarrie said in an email. “My understanding is that the University of Chicago team that collected the original data for CRSP in the early 1960s ran out of time and / or money as they got back that far.”

 

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