You Can’t Handle the Truth About Stocks

CNNMoney.com interviews Boston University School of Management professor Zvi Bodie. I do not totally agree with Mr. Bodie, but he does have some interesting points. Here are some highlights:

The advice rolls off the tongues of financial planners and appears frequently in the pages of financial magazines such as Money: To have any shot at retiring well, you need to invest a good portion of your money in stocks.

But mention this to Boston University School of Management professor Zvi Bodie, author of “Worry-Free Investing,” and you’ll get a stern reminder of how equities often betray investors. And you’ll get an earful about how millions of us are taking too much risk with our nest eggs.

……….

But don’t you need the growth that stocks provide to combat the risk of inflation?

Inflation is exactly what Treasury Inflation-Protected Securities (TIPS) and I bonds were created to protect against. Even if equities did perform well in periods of inflation, you’re exposing yourself to an even greater risk of a stock market decline. And as it turns out, anytime there’s been significant inflation, equities have been a terrible investment. Just look at the 1970s.

So you’d tell an investor to have 100% of his retirement money in TIPS?

Yes. In fact, I have 100% of my own retirement money in TIPS. I do have a small account of nonretirement funds in which I invest in bonds, options, and stocks.

Currently, long-term TIPS earn just 2% after inflation. How is anyone going to be able to retire on so little growth?

If you look at most online retirement calculators, they make two assumptions: one, that you want to retire at age 65, and two, that people will be able to save only a certain amount — say 10%. As a result, they spit out risky portfolios to get a higher return. Well, who says we all want to retire at 65 and can save only 10%? What if I retire at 70 or 75? What if I save 30%? Suddenly, you don’t need to take so much risk in your portfolio. Now, if you put 100% in TIPS, you will have to save upwards of 20% of your annual pay, even if you’re young, to retire at age 65. But I think it would be more reasonable to expect to retire at a later date.

Read the full interview here

401(k) Fees – Excessive and Unreasonable

From BlogHer

It’s been a precipitous fall. The balance in the majority of 401(k)s keep going lower and lower and lower.Now,to add insult to injury, investors are learning that it’s not just the stock market that is hurting their bottom line, it’s the fees being charged by their 401(k)provider.

“The financial industry is a scam. Advisers and money managers earn more on your money than you do, ” says Michael Edesess,Partner and Chief Investment Officer of Fair Advisors, and author of the 2007 book, The Big Investment Lie.“The problem with 401(k)s is that in very many cases the costs are greater than the tax benefits, making them a net negative wealth-builder.”

About those costs – do you have any idea how much you are being charged in administration fees for your 401(k)?

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