Zvi Bodie Writes for WSJ on Stocks, Risk, and Retirement
On March 12, 2012, The Wall Street Journal published the following editorial from Boston University’s Zvi Bodie, the Norman and Adele Barron Professor of Management, and co-author Rachelle Taqqu. Bodie and Taqqu are also co-authors of the new book Risk Less and Prosper: Your Guide to Safer Investing, hailed a “must-read” by much of the financial media.
Excerpts from The Wall Street Journal:
“Why Stocks Are Riskier Than You Think”
Most people can get the money they need for retirement without gambling heavily on equities, say Zvi Bodie and Rachelle Taqqu
A growing sense of urgency is driving many investors to take reckless risks with their money.
Even though they experienced the hazards of stock ownership firsthand in 2008, investors are venturing back into equities again. They’ve been advised that there’s no other way to make up the losses they suffered—or meet their looming retirement requirements—and, not to worry, the risk of stocks diminishes the longer you hold them. The Federal Reserve, meanwhile, has announced that it intends to keep interest rates low through 2014—providing a powerful inducement to stay in stocks since bonds will probably generate unusually low returns.
Despite the assurances of the financial industry, stocks are always a risky investment, and the longer you hold them, the better your chances of getting blindsided by a downturn. The usual way of mitigating that risk, diversification, holds no guarantees, either—for the simple reason that investments don’t always move the way we want in relation to one another.
A safer way to build and protect retirement assets is to picture your goals as clearly as possible. Then pare things back to the basics. Figure out the bare-bones level of income you need and invest in products that guarantee it, such as inflation-protected bonds. Use the rest of your investment money to build reserves to fund your aspirational goals.
Read the full editorial here.