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New Investment Strategy: Don’t Invest

September 14, 2012 Leave a comment Go to comments

I’ve seen a few references to Zvi Bodie’s writing over the years. His book apparently encourages investors to plan for their retirement using inflation-indexed bonds, and ignore stocks. In a recent WSJ article he responds to readers’ questions about this strategy.

Near the end a reader asks what size of portfolio would be needed to reach a certain annual income, and he replies: “With real rates so close to zero, you’ll get a good estimate by simply multiplying $85,000 (or the income you need) by the number of years you expect to need it.”. In other words, expect no investment returns and just plan to spend the cash you’ve stockpiled! And if you want to be prepared in case you live an extra 20 years, you’ll just need to have a career twice as long before retiring.

I still have enough confidence in financial markets to try doing better than that, although I will stay away from investments that aren’t likely to produce a good real return over time (much like inflation-linked bonds with real interest rates near 0%).

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