If You Need Stocks, You Can’t Afford Them

According to economist Zvi Bodie. In a Money magazine article he says that if you need the high return of stocks to reach your goals then you can’t afford to invest in stocks. You should read the article to get all the details but this is a general summary of what he says. He states that stocks are too risky an investment for retirement investing and suggests a portfolio of TIPS instead; you should only invest in stocks what you can afford to lose. He also says that you should save 20%-30% of your income or more so you will accumulate enough money for retirement despite not having the higher returns from stocks.

This is an interesting point of view and I can agree with it somewhat. As he states when you are saving for retirement you can either sacrifice by having a lower standard of living now, working longer, or taking more risk in your portfolio. If you are able to maintain a low standard of living and save a large percentage of your income than the returns you receive are not as relevant as when you are saving only 10% of your income.

Personally, I am still going to be investing in stocks. They are risky but since I have started saving late in the game and don’t have much income I need the high returns of stocks to accumulate enough money to retire. Even if I were young and just starting out I don’t think I would put 100% of my money into TIPS though. That just seems too conservative to me. Once I have accumulated all the money I need then I might consider putting a large percentage of my investments in TIPS or some other form of guaranteed income but until then I will stay invested in stocks.

What do you think of Bodie’s advice?