You may want to check out Jon Chevreau’s interview with finance professor Ziv Bodie, author of “Worry-Free Investing”, who calls into question most of todays widely held financial wisdom:
- Prof. Bodie argues that ordinary investors do not have to take any stock market risk when there is a safe, guaranteed long-term investment in the form of real return bonds.
- He doesn’t view stocks or gold as inflation hedges and points out that REITs have a slightly positive correlation with inflation but cannot be counted on to go up in proportion to inflation.
- Prof. Bodie points out that since you can’t get a higher return without taking on higher risk, the investment industry’s claim that people can just save less and invest in stocks for the long-term is a lie. By taking risk, investors are also exposed to the possibility that they could do worse.
- He calls the conventional wisdom that over the long-term there is little risk in equities as a fallacy. “If you spread risk across uncorrelated assets then yes you get diversification of risk but over time there is no diversification because the good years don’t necessarily cancel out the bad”.
Having read The Four Pillars of Investing in which William Bernstein warns against extrapolating recent experience ad infinitum, I wasn’t terribly surprised by Prof. Bodie’s interview. “Worry-Free Investing” is now on my “to read” list and I hope Mr. Chevreau will post the rest of the interview.
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