Risk Less and Prosper: Your Guide to Safer Investing

by Zvi Bodie, Rachelle Taqqu

A practical guide to getting personal investing right Somewhere along the way, something has gone very wrong with the way individuals save and invest. Too often, households are drawn in by promotional suggestions masquerading as impartial investment advice. Consumers get saddled with more risk than they realize. Authors Zvi Bodie and Rachelle Taqqu understand the dilemma that today's investors face, and with Risk Less and Prosper they will help you find your financial footing. Written in an accessible style, this practical guide skillfully explains why personal investing is all about you―your goals, your values and your career path. It shows how to understand investment risk and choose the particular blend of risk and safety that is right for you. And it lays out several simple yet powerful ways for small investors to cast a reliable safety net to achieve their financial goals and truly prosper. Coauthors Bodie and Taqqu challenge the myth that all investments require risk, then highlight some important risks that families often disregard when deciding where to put their money. Later, they connect the dots between investment and investor, showing us all how to grasp our own investment risk profiles and how we may use these insights to make more fitting investment choices. Contrary to popular belief, investing doesn't have to be complicated. You can build wealth without taking great risks. Risk Less and Prosper will show you how to make investment decisions that will make your financial life less stressful and more profitable.

Genres: Finance, Nonfiction, Business, Economics

224 pages, Hardcover

First published January 1, 2011

About the author

Zvi Bodie is the Norman and Adele Barron Professor of Management at Boston University. He has published widely on pension finance and investment strategy in leading professional journals.

Bodie's books include Foundations of Pension Finance, Pensions in the U.S. Economy, Issues in Pension Economics, and Financial Aspects of the U.S. Pension System. His textbook, Investments, is the market leader and is used in the certification programs of the CFA Institute and the Society of Actuaries. His textbook Financial Economics is coauthored by Robert C. Merton.

He has served on the finance faculty at the Harvard Business School and MIT Sloan School of Management. He sits on the QFINANCE Advisory Board.[citation needed] In 2007 the Retirement Income Industry Association gave Bodie their Lifetime Achievement Award for applied research.

He holds a Ph.D in economics (1975) from the Massachusetts Institute of Technology.

Reviews

[Malin Friess · Rating 3 out of 5]

Bodie argues that most of us are riskier than we have the stomach for and are more uncomfortable with significant loss of savings than we realize. He emphasizes that the S&P has had 8-10 year intervals of a Bear market with significant losses. Be prepared for that. Bodie wants you invested in more conservative assets like TIPS and BONDS.

3 stars.

[Leah · Rating 3 out of 5]

I valued the information about I bonds and TIPS, which were the primary reason I read this book. 

I'm skeptical of the authors' claims that stock market returns are completely random - stock market manipulation over the last several decades has proved that it's not.  The stock market has runs of wins and losses - any individual year's returns are not completely random and divorced from the circumstances of the years before them.   The stock market is continuously manipulated by tax policy and stimulus bills and federal interest rate adjustments.  The outcomes may not be predictable, but they are not random.
The authors also argue that holding stocks for the long term does not reduce risk, and I don't think they made a convincing argument for that.  However, their point that the stock market rising over the long term does not mean that stock market returns will be high when you need them to be is a good one.  People do have a limited window when they need their retirement funds to be available, but the authors also spend a lot of time focusing on the fact that individuals can assess their own income stability and employment timeline to determine how much stock market volatility they're willing to risk.
I did enjoy the exercise in this book for writing down your expected spending goals and amounts, when you expect those to occur, and what the priority for each spending goal is.  I can see that timeline being useful, and I appreciate the authors pointing out separating your minimum financial needs from your aspirational spending.  Making sure a certain amount of funds to cover baseline spending is more securely invested than the rest of your portfolio is reasonable.  I think that like me, many people looking at retirement are already making their plans based on their minimum financial needs.  If I prepare for the worst historical case scenario with a balanced stock/bond portfolio, the majority of the time the market will perform better than that, which will cover increased/aspirational spending beyond my minimum financial needs.   Having all of that money in inflation-protected securities guarantees that that increased spending beyond those minimum needs won't ever be possible without saving significantly more money and working longer.  This risk is not addressed. 

[Donn Lee · Rating 4 out of 5]

This book is rather dated and some of its predictions were, with the benefit of hindsight, way off. Put aside the doomsday predictions and overall pessimistic tone though (which would have rubbed many of not most investors the wrong way during the booms we’ve seen since the 2008 crash) and you get a book that’s actually pretty clever albeit full of counterintuitive advice — at least they’re “intuitive” in the sense that they’re such common pieces of advice it’s become ingrained in our psyche.

For example the argument that stocks could well remain down throughout your life, and that bonds aren’t necessarily safe (due to inflation).

It’s the kind of approach I could logically fully believe in (though I personally invest in stocks and follow the “common” logics of 4% withdrawal rate and stocks go up in the long run etc) I cannot being myself to recommend such approaches to others without knowing full well that they know the risks. The authors approach is much closer to what I’d bring myself to recommend as it completely takes away the risk by focusing on risk free assets to handle essentials, before even considering the use of equities for upside.

It changed the way I think about personal finance, and provides a fantastic alternative perspective to that of popular personal finance today.

[Ronald · Rating 4 out of 5]

I'm not sure what rating to give here. I read one of the author's papers and found his conclusions logical. I guess stock fans who earned good return in the pre-2021 time felt Bodie was too conservative and gave his book a hard time. What I took out of his message is that stock returns are volatile and a portfolio consisting of too much stock will likely cause severe dips in the drawdown phase. His recommendation is based on having a safety zone consisting of TIPS and other safe instruments so that the base lifestyle is guaranteed. Like the book money magic, my take is for many people, the only way to guarantee no dip during drawdown is to spend very little and work until they wear out. Maybe it's technically true, but still, very unsettling.

[Derek · Rating 2 out of 5]

There wasn't a lot of great information in this book and it differed from convention in some of its points. I am okay with this and even find it refreshing to read a new perspective but the supporting evidence for this perspective was either not presented or generally not convincing.

[Ralph · Rating 2 out of 5]

Introduces an interesting way to think about savings goals, but it's evident that this book always tries to communicate with 5 pages of greywall text what it could have with 2 pages of visuals.

[William Frick · Rating 3 out of 5]

Good lessons to Ben taken from this book, but overall, I believe the message is too pessimistic going to the broader financial circumstances at which time it was published.

[GoatRobe · Rating 3 out of 5]

I'm a conservative investor already, so this book's premise was right up my ally. That said, I found the actual investing advice to be too narrowly focused.

The strength of this book is in the chapters talking about examining personal goals and timelines - an excellent exercise to guide personal investment choices, whether or not you decide to follow the rest of the book's advice.

[David · Rating 4 out of 5]

Great book! I read it in three days, and then turned around and read it again, and then after that flipped through pages, reviewing certain parts of the book.

The Authors does a great job of explaining risk, inflation, investments (particularly iBonds and TIPS), and introduce readers to goal based investing (which comes from life-cycle economics).

Before you read this book, look at your retirement and investment accounts, and upon completing this book, look at the accounts again. You most likely will not see them in the same light as before.

Again, great book.

[Steven Mandeville · Rating 3 out of 5]

Great personal finance book to help you think through retirement/education planning. Uses a goal-based approach combined with a different perspective on mitigating risk-less through diversification and more through using inflation-protected government securities (TIPS, I-Bonds).

While their methods aren't the norm, definitely insightful to evaluate with your current investments close by. Also a good primer if you're looking to have initial conversations with a financial advisor in the near future.

[Brent Hunsberger · Rating 4 out of 5]

It's short, written in easy-to-understand language and offers guidance on how to set up less risky retirement nest eggs. I found the illustrations wordy, and some examples could've been more detailed (such as how to set up a nest egg with TIPS). But it's still a good primer for concerned Baby Boomers.

[Alison · Rating 3 out of 5]

useful for forcing you to think about all the stuff you don't want to think about.