The box of factors that we call “risk” is both too large and too small. The box is large enough to include many, sometimes conflicting, measures of risk—variance and semivariance, probabilities of losses and their amounts. But the box is too small to include factors that affect choices but fall outside the boundaries of risk—frames and cognitive errors, self-control and regret. We explore the role of these factors in time diversification.

The belief that time diversification reduces risk underlies the current drive to invest Social Security funds in stocks. But is such investment prudent? We discuss the role of advisors in providing prudent advice, changes in the standards of prudence over time, the use of time diversification in guiding investors to prudent portfolios, and its use in the current debate on Social Security.