Comments on: Book Review: Worry-Free Investing

By: Monevator

Monevator — Sat, 01 Mar 2008 13:34:13 +0000

I’m not familiar with the terminology of Canadian instruments, but I presume real return bonds are similar to TIPS in the US or Index-Linked Gilts here in the UK.

As others have said, the returns are so puny on these kind of vehicles that you do wonder if it’s worth bothering with at all.

Surely a better no worry portfolio would be a mix of equities and traditional government/corporate bonds. If it worries you, don’t look at the value! (Read Taleb for more on that).

Here in the UK the yield on Index-Linked Gilts has been driven down by pension funds buying huge amounts under direction/leaning by the government. We don’t need to make the same mistakes as them.

Some in your portfolio, fine. Maybe even 20-30% if you’re super cautious. 100% is madness, in my humble opinion.

By: Sunday Roundup

Sunday Roundup — Sun, 24 Feb 2008 18:35:45 +0000

[...] Dollar Plan wrote a great post about the work/life mix. Canadian Capitalist did a book review on “Worry Free Investing” which takes a too conservative look at [...]

By: tracy ho

tracy ho — Fri, 22 Feb 2008 06:53:23 +0000

Thanks , wise & happy to read your post ,

Thank you in advance

Tracy Ho
wisdomgettingloaded

By: Middle Class Millionaire

Middle Class Millionaire — Wed, 20 Feb 2008 13:45:14 +0000

If you have a long term time horizon I think the biggest risk investors take with equities is not being invested in them. I can see the logic in slowly shifting a portfolio from equities to fixed income as an individual gets closer to retirement. However, having a portfolio of 100% real return bonds seems not only foolish but also risky for those with many years until retirement. Perhaps the book should have been entitled “Worry Free Investing: How to Escape the Rat Race by Age 95”.

Cheers,
MCM

By: Riscario Insider

Riscario Insider — Wed, 20 Feb 2008 04:58:44 +0000

Real Return bonds = Really No Return bonds.

As FourPillars says, saving lots is a good strategy. Working as long as you can is not very appealing. Another strategy is to find ways to increase your work earnings, whether as an employee or self-employed. To quote JFK, a rising tide lifts all boats.

By: FourPillars

FourPillars — Tue, 19 Feb 2008 21:23:00 +0000

The idea of buying only RR bonds is interesting but as you guys mention, it’s mostly academic for retirement planning because you can’t save enough and retire at a decent age.

I’m no expert on risk but I think there is always a tradeoff – the 4% rule gives you a pretty good chance of not running out of money – it’s a better chance than the 5% rule gives you, but not as good as the 2% rule gives you. Problem is that the lower the percentage, the longer you have to work.

Probably the lowest risk form of retirement is to save as much as you can and continue working as long as you are able.

By: Phil S

Phil S — Tue, 19 Feb 2008 20:52:58 +0000

As the author is referring to I-bonds, then I am assuming that the book is American in nature. I-bonds are savings bonds in the USA that earn interest on a 6-month average core CPI inflation rate plus 1%. The other key feature of American I-bonds is that you do not get taxed on the interest accrued until you cash out that bond, so it is a good method of tax-deferred investing. Also, that makes I-bonds more sensible to hold outside of your retirement account, since an IRA or 401k in the USA is just another tax deferral method like a Canadian RSP. In other words, there’s no sense in buying a tax-deferred investment in a tax-deferred account!

By: Guerilla Investor

Guerilla Investor — Tue, 19 Feb 2008 20:25:23 +0000

Real returns by whose measure. I guess I must sound like a broken record about this but I just don’t believe the government line on the real rate of inflation. Since governments and their central banks are the agents responsible for the inflation believing them about the rate of inflation is like believing a thief when you ask him how much he stole. Look at how fast the money supply is growing? In the US I have seen figures for M3 as high as 14%.
In any case I would have to agree with Canadian Capitalists point here. A strategy like that is guaranteed to fall far short for retirement. Seems to me like a no brainer.

By: Canadian Capitalist

Canadian Capitalist — Tue, 19 Feb 2008 14:40:53 +0000

Michael: The amount of “worry-free” savings needed is truly staggering. Without considering CPP & OAS, for someone beginning to save for a retirement in 20 years (and assuming they would spend an equal amount of time in retirement) need to save 39% of their income. So, the choice is clear: you can either take a 100% chance of not meeting your goal or you can settle for a small chance of not meeting it by investing in equities.

By: Michael James

Michael James — Tue, 19 Feb 2008 13:54:04 +0000

During his interview with Chevreau, Zvi Bodie said that he wanted to counter one of the investment industry’s lies that there is no such thing as safe investing: “The reason I wrote Worry Free Investing was I wanted to tell investors that’s not true. There IS a safe long run investment.”

He’s right that there are safer investments than stocks and bonds. For the average investor, these safe investments will grow small savings into a small sum that is hopelessly inadequate for retirement.

Bodie should have gone after other investment industry lies. This particular “lie” has a lot of practical truth to it.