5 Investments You’d Regret Making if You Live Only on Social Security

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When living solely on Social Security, with an average monthly retirement benefit of $1,907 in January 2024, every investment decision is crucial. With around 40% of older Americans relying solely on their income stream being a social security check, according to the National Institute on Retirement Security, it’s easy to see why many seniors search for investing opportunities to stretch their income further. While this may seem like a good idea, some investments are way riskier and have much worst return on investment (ROI) than others. Here are five investments that might not align with the financial goals of those relying solely on Social Security, along with their risks and some advice:

Penny Stocks

These are high-risk stocks of small companies, often trading for less than $5 per share. They are highly volatile, lack liquidity, and are susceptible to market manipulation, making them unsuitable for retirees on a fixed income. They are also known to have one of the worst returns on investments, making them simply a gambling game for people who can toss around money much more easier, therefore, not meant for older Americans solely getting income from a social security check.

Estimated average return on investment: -27%

Non-Income Generating Real Estate

Investing in real estate that doesn’t generate regular rental income, such as vacant land, can tie up funds without providing the necessary cash flow to supplement Social Security. The lack of income and potential for high maintenance costs can deplete your savings.

Estimated average return on investment: 10.6%

High-Yield Bonds (Junk Bonds)

These bonds offer higher interest rates but come with a greater risk of default. For someone relying on Social Security, the potential for losing principal may outweigh the lure of higher returns, and the lack of liquidity can make it difficult to access funds when needed.

Estimated average return on investment: between 4% and 5%

Leveraged Exchange-Traded Funds (ETFs)

These funds use financial derivatives and debt to amplify the returns of an underlying index. However, they can also magnify losses and are subject to high fees and complex tax implications, making them a risky choice for retirees.

Estimated average return on investment: 7-10% over a ten-year period

Cryptocurrencies

The extreme volatility and speculative nature of cryptocurrencies like Bitcoin make them a risky investment for those depending on a stable income. Current popular cryptocurrencies are also highly expensive with Bitcoin selling at over $68,000 and Ethereum at over $3,000, plus the constant fluctuation of ROI data makes crypto highly not recommended to play with while just living on a social security check. The lack of regulation and potential for fraud can also lead to significant losses.

Advice for retirees living on Social Security:

• Focus on investments that offer stability and income, such as government bonds, dividend-paying stocks, and low-cost index funds.
• Diversify your portfolio to spread risk and protect your savings.
• Consult with a financial advisor to tailor an investment strategy that fits your individual needs and risk tolerance.

By prioritizing stability and preservation of capital, retirees can make informed investment decisions that complement their Social Security benefits and provide a more reliable income stream.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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