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Risk Less and Prosper: Your Guide to Safer Investing Hardcover – December 27, 2011
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Q&A with the Authors
Personal investing is all about YOU--your goals, your resources, your circumstances, and your values and preferences. People often lose sight of this fundamental premise: They start by focusing on investment opportunities--but this is a recipe for getting overwhelmed and distracted. Instead, start by examining yourself. What are your human resources, your career plans, earning potential, entrepreneurial ability and ambitions? What do you value most? Are you willing to postpone consumption for later? What spending you consider essential? Your answers to these questions will shape the investment path that is right for you.
Unfortunately, self-examination is more easily talked about than done. On top of that, your profile is dynamic. It will almost certainly change. To help you over these hurdles, Risk Less and Prosper takes you through six simple but high-impact steps toward picturing your personal investment profile in detail. It gives you target-practice exercises that you can return to year after year.
Common assumption is that investing requires taking on risk. Risk Less and Prosper disputes that. How can one find the balance between risk and safety?
The theory of lifetime investing, as developed by Paul Samuelson and Robert Merton in their canonical 1969 papers, assumes a risk-free asset and a single risky asset. The fundamental issue in investing is how much to invest in safe assets as opposed to risky ones. So investing involves a trade-off between safety and risk in search of higher returns.
In the book, we show you how to find your personal risk set point--or the trade-off that’s right for you. At a minimum, you will need a safety net that is strong enough to cover your most essential needs. You’ll learn here how to go about owning one. Your risk tolerance is also relevant, although it’s a separate and secondary matter. You'll gain some surprising insight into your own attitudes toward financial risk and why they may matter less than you think.
Are you "anti-risk"?
How can someone determine their investment profile?
Read the experiences of the five men and women in our group. See our chapter on how to find good advice, and try to get some if you can. Set aside time for introspection, and follow the six steps for effective target practice that are spelled out in Part I. Refresh as needed.
Assuming that they have already followed your suggestion to "know yourself," what one piece of advice would you give someone looking to invest in today's markets?
Start by asking what the safest strategy will do for you. That is your benchmark. If you decide to take risk, realize that by definition you can wind up with a worse outcome than your safe benchmark.
Who would benefit from reading your book Risk Less and Prosper
Anyone who is confused, overwhelmed, or dissatisfied with their personal investment situation. People who are concerned about falling short of their basic financial goals. Everyone who believes in the scientific method.
"...a good read for those of you who are skeptical of investing in today's stock market. But it is a must-read for those of you who actually think that you know what you are doing." (Huffington Post, January 2012)
Top Customer Reviews
In the late 1920s a number of books were written to the effect that stocks were a good long term investment. In 1994 Jeremy Siegel first published the book "Stocks in the Long Run" based on exhaustive analysis of the past statistics.
In turns out that since 1994 stocks have been quite volatile, its been 18 years now, sort of the long run for a lot of people. Probably the popularity of that book helped inflate the stock bubble that finally burst in the year 2000.
For six years after "stocks in the long run" was first published, stocks continued to do very well indeed, but from the year 2000 to today in 2012, for the last 12 years, stocks have been volatile and not the best long term investment.
As it turns out stocks in 1994 were an excellent 6 year investment, but not the best 18 year investment. They were in actual fact a good short term investment, and had an investor switched to long term government bonds in the year 2000, he would have been far better off.
Long term U.S. Treasury bonds were yielding around 8% at the time of that book's release, and zero coupon U.S. Treasury bonds would have been an excellent long term investment in 1994.
Part of this stems from what we mean by the "long run". For many of us the last 12 years of stock market volatility is the long run.Read more ›
The book does an especially good job emphasizing the importance of goal setting and liability-driven investment strategies. It is also refreshing to find a de-emphasis on maximizing return on investments. Furthermore, the discussion of the importance of separating the "musts" from the "wants" in financial goals is truly excellent.
My key quibble is about the claim that TIPS bonds bought on the secondary market lack price transparency and hence TIPS should be bought only at the initial auction. In reality, brokerage sites such as Fidelity.com clearly list both the Bid (customer sell-back) and the Ask (customer buying) price for every secondary TIPS issue. The spread between the two is less than 1% across the board on Fidelity.com - not a large enough percentage nor indicative of price rip-offs to have to restrict oneself to just purchasing issues offered at auction.
Also, the argument for TIPS and I-Bonds could perhaps be tempered by acknowledging that this investing strategy is far from perfect. For instance, peoples' personal inflation rates may differ substantially from the Consumer Price Index used for TIPS and I-Bond adjustments.Read more ›
The recently-published book by Zvi Bodie and Rachelle Taqqu, Risk Less and Prosper: Your Guide to Safer Investing, provides a unique perspective on how to meet the challenge of long-term financial planning. The book is well-organized into a number of steps required for identifying and organizing long-term goals and thinking through how to meet these goals. The presentation is built around a narrative in which a group of people meet to try to figure out how to meet their long-term goals and how to deal with the uncertainty associated with both their lives and their investments.
For those who are not familiar with Zvi Bodie, a professor at Boston University, some history is in order. Dr. Bodie has a long history of challenging the conventional wisdom that individuals saving for their future needs (most notably retirement) need to maintain a substantial allocation to risky asset classes such as stocks. His research, buttressed by that of others, suggests that investors tend to take on far too much risk in their investing and do not really understand the nature or magnitude of the risk that they bear.
The standard view of investing for retirement is that investors need to own stocks and other risky asset classes in order to accumulate sufficient wealth to someday be able to retire. A corollary to this notion is that while stocks are risky in the short term, they become less risky the longer you hold them so long-term investors can handle the short-term volatility because it will pay off in the long-term. Another key assumption that is often part of the standard thinking is that we can have confidence that stocks will soundly out-perform other possible investments in the long-term.Read more ›
Most Recent Customer Reviews
I bought this for my two kids, also, and my daughter rearranged her 401K based on the info within. It also helped my solidify my retirement investments (I am retired now) to a... Read morePublished 6 months ago by Earnestlyernest
As a practical guide to action, it boils down to invest 100% in TIPS and I-Bonds. Those have extremely low yields... you can find bank CD's that are better. Read morePublished 14 months ago by Tom Graham
After reading some articles about Zvi Bodie, I had really high hopes for this book. The articles summarized his position of playing the retirement planning game in defensive mode. Read morePublished on March 31, 2014 by D. Griffin
I returned this book once i figured out it was offering Treasury Inflation Protection Securities (TIPS) as the back bone of "riskless" investing. Read morePublished on November 28, 2013 by Michael A. Farrell
Note that this book is on the Essential Readings list for the RMA designation [Retirement Management Analyst(sm)]. Read morePublished on November 12, 2013 by Francois G. Gadenne
Excellent points about analyzing one's own situation before choosing investments. The rather harsh view about the long-term 'risky' stock market seems unsupported by the facts, in... Read morePublished on September 26, 2013 by Thomas K. Meyer
I have only started to read this book, based upon the book being mentioned by an extemely well known writer on the subject of folks and their money/investments. Read morePublished on August 12, 2013 by Clayton C.
This book has opened my eyes to the real risks of putting my future in the hands of the financial services industry
Which has AccumulAted great wealth for itself at the... Read more
Written in 2012. It may be outdated already. A major push in safety was to purchase. I bonds because of their inflation connection but now the president is pushing a chained CPI. Read morePublished on April 21, 2013 by Fred Lucia