! For Long-Term Investors, the Focus Should Be on Risk
Paula Hogan , CFP, CFA, is a fee-only adviser based in Milwaukee, Wisconsin, and a frequent speaker and author in the financial planning field. She maintains a website at www.paulahogan.com.
Zvi Bodie , Ph.D., is a professor of finance and economics at Boston University School of Management. He maintains a website at www.zvibodie.com..


Discussion

JY from OR posted over 3 years ago:

The conservative half of me recognizes the need to concentrate on minimizing investment risk, especially when significant market downturns can lower one's standard of living, or worse, for the remainder of life. The practical half of me recognizes that being too conservative, especially when real inflation (i.e. food inflation, etc.) exceeds the amount of safety purportedly offered by inflation protected securities (i.e. TIPS) and similar investment instruments.

The author makes intelligent points worthy of consideration. However, it is also true that we all must be willing to take on more risk than we are comfortable with to ensure that we don't merely survive until we die. I guess if we were all multi-millionaires this would be a mute discussion.


John G from TX posted over 3 years ago:

My wife and I ( 68 & 69 ) have about 1.5 million in qualified money in stocks managed by a non dark side advisor. Another 500k in cash. Still working. And a passive real estate income of around 200k/yr. Should we stay the course in stocks?


Sanford Levey from MA posted over 3 years ago:

"Sandy" L from M
I wish I were in John G's shoes. my wife&I (72 & 77) have about 450k in 401k
Sable value fund & about 200k in stock funds. And also 65k in cash. so I ask the same question as above. Should we stay the course in stocks?(funds actually)


Harry Rich from OH posted 4 months ago:

Unfortunately, those of us who are going to have to pay the higher than average medical expenses of the elderly have to do better than the rate of inflation. My recollection is that in 2013 the rate of inflation on medical expenses was about 7-1/2% per annum and at last look it had dropped to around 5-1/2%, but who knows which direction it will go now.

Although my portfolio contains a substantial allocation of TIPS, I understand that I must buy them with caution. Interest rates can rise faster than the rate of inflation reducing the value of any TIPS held. Sometimes there are bond buying frenzies in which TIPS are overpriced. Further, the US Government, which pays off on them, also determines how the rate of inflation is calculated.


Thomas Schaber from OH posted about 1 month ago:

"..And once risk tolerance is taken into account, there are instances in which even long-term investors will not choose to put a substantial portion of their portfolio into stock investments."

Not true. Wrong definition of "risk".

When you view "risk" as the risk of not having enough money to see you through retirement, then the only sensible approach is 100% stock.

Yes, devastation if the market goes against all odds and goes down and never comes back but this scenario is much less likely than you not having enough money because you protected yourself by not having a 100% stock portfolio.


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