The traditional investment advice is to buy stocks and hold them for the long run. The problem is that there have been many long periods of time when the stock market remained essentially flat or even negative. Most recently, stocks lost about -.95% a year over the ten year period ending in 2009. That doesn’t even include losses from commissions, trading costs, investment management fees, taxes, and performance chasing.
In fact, Boston University finance professor Zvi Bodie argues that stocks are actually riskier in the long run. His approach is to minimize risk by investing all his assets in federal government guaranteed inflation-protected bonds TIPS (treasury inflation protected securities). These bonds are guaranteed at maturity and pay a fixed interest rate based on a principal value that is adjusted for inflation. TIPS still have the risk of falling values if interest rates increase or having to reinvest your principal at lower rates when they come due but both of these risks can be mitigated by buying them in a mutual fund or in a laddered portfolio with different maturities. Perhaps the biggest problem with this strategy is the paltry returns you’ll get in this current low interest rate environment. That means you’ll have to save that much more to produce enough income in retirement. Is it worth the peace of mind? Is this money madness or a money miracle?
