Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals: A Safe Approach to Achieving Your Lifetime Financial Goals by Zvi BodieWorry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals: A Safe Approach to Achieving Your Lifetime Financial Goals by Zvi Bodie

Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals: A Safe Approach…

byZvi Bodie

Hardcover | May 12, 2003

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"This book is a must for those timid souls who don’t enjoy risk taking . . . like me."
Franco Modigliani, Nobel Prize Winner, Economics

"WorryFree Investing will enable you to achieve your retirement plans no matter what the stock and bond markets are doing. Bodie and Clowes present a safe way to build and control wealth. The methods are thoroughly and simply explained. Yet, the ideas stem from rigorous research and stateoftheart science. This book is just what millions of investors need in these tough times."
John R. Nofsinger, Finance professor, Washington State University, author of Investment Madness, Investment Blunder, and Infectious Greed

"Zvi Bodie and Michael Clowes have presented the proverbial ’missing link’ to reliable investment management and worryfree financial planning. Considering the thousands of books available on equity investing, there is a remarkable shortage of information on riskfree bond and alternative income asset classes. This unique book will singlehandedly help you balance your knowledge base as well as your portfolio.

"Uncomplicated and unbiased, this is a must read for everyone who needs to provide themselves with a sustainable income throughout their retirement. You won’t find this material in any other investment book. When you are done lend your copy to a Financial Planner."
Barry Cook, DoItYourself Investor

"Bodie and Clowes’ book is the most timely personal finance book of the year. Retirement investors, severely affected by the dotcom market bubble and employers’ 401(k) malfeasance, are given simple ideas that will restore their hope in planning for retirement. It is a clarion call for 401(k) innovation and adding choices for TIPS (Treasury) bonds and equity funds containing downside protection. Such sensible, powerful retirement advice is truly a public service. Both authors deserve the Pulitzer Prize!"
Clinton E. Day, Chartered Retirement Planning Counselor

"Bodie and Clowes’ book is a useful compass for navigating the uncertain and sometimes treacherous waters of investing. Their insights deliver results."
Louis Columbus, Senior Analyst, AMR Research

"A provocative and powerful debunking of the sovereign myth of equities as the camino real to retirement adequacy. This lucid and assuring guide is like none other in answering the individual investor’s call for practical, trustworthy advice for safely achieving financial security. Highly recommended."
Alan Cleveland, of Counsel to Sheehan Phinney, Bass and Green

Now that you’ve been betrayed by the stock market, how can you be sure your retirement or college money will be there when you need it? In WorryFree Investing, two respected investment experts outline the ideal investment program for every investor worried about asset protection. Drawing on three powerful riskreduction strategies, their plan virtually eradicates riskand is virtually guaranteed to beat inflation!

The authors first demolish the myth that a diversified stock portfolio is your safest longterm investment. Next, they introduce U.S. governmentbacked investments that are protected against inflation and outline littleknown investment techniques that are ideal for riskaverse investors.

Once you’re sure your fundamental needs are covered, WorryFree Investing helps you decide when to consider modest risk in the pursuit of higher returnsand how to strictly control whatever risk you do take on.

Clear and easy to understand, WorryFree Investing is the only book for investors who want to protect their assets, no matter what.

Why the conventional wisdom about stocks is wrong
They are risky no matter what your time horizon

Safe, inflationindexed U.S. government investments you’ve never heard of
How to be sure of your returnsregardless of the markets or inflation

Taking charge of your investments with Six Steps to WorryFree Investing
Reducing your risk to the level that is appropriate for you

Diversification isn’t enough
Riskreduction strategies that work when diversification won’t

Controlling the risks you choose to take
Practical techniques for increasing your potential upside while strictly limiting risk

Zvi Bodie is a Professor of Finance at Boston University School of Management and a worldrenowned investment consultant. He holds a Ph.D.from MIT and has served on the finance faculty at Harvard Business School and MITis Sloan School of Management. His marketleading textbook Investments, coauthored with Alex Kane and Alan Marcus, i...
Title:Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals: A Safe Approach…Format:HardcoverDimensions:9.25 × 6.45 × 0.98 inPublished:May 12, 2003Publisher:Financial Times Prentice HallLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0130499277

ISBN - 13:9780130499271

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From the Author

Preface The past few years have shocked and dismayed investors who had been relying on the stock market to pay for their future goals. After 20 years of almost uninterrupted gains, stock prices have declined sharply. Millions of Americans who had believed the mantra that stocks are unbeatable in the long run are now worried about achieving their retirement goals and their hopes of paying college tuition for their children. Are you one of these worried investors? If so, this book is for you. In these pages you will learn that: There is a safe, worryfree way to beat inflationinvest in Consumer Price Index (CPI) linked bonds. In April 1997, the U.S. Treasury began issuing these bonds, which protect investors against increases in the cost of living for up to 30 years. In 1998, the Treasury introduced convenient taxadvantaged CPIlinked saving bonds in denominations as small as $50. The Treasury’s stated intention was to encourage personal saving by providing a safeway to invest money for retirement and other longterm goals. Yet today, only a few years after they came into existence, many Americans are not even aware that such securities exist. We provide stepbystep instructions for using them to safely achieve your financial goals. There are ways to invest in inflationprotected retirementincome contracts that are guaranteed to last for as long as you live. There is a worryfree way to invest your savings for a child’s college tuitionbuy tuitionlinked Certificates of Deposit (CDs). These taxadvantaged, governmentinsured accounts are even safer than CPIlinked bonds, although they promise a lower rate of interest. Buying your own home may be your biggest investment. We show how to use your own home as a means to invest safely for retirement and to pay for your living expenses in old age. If you are willing to accept the risk of losing some of your money, there are sensible ways to increase your potential gains by investing in stocks, or in mutual funds, or inrelated securities, such as ExchangeTraded Funds (ETFs). We help you decide if you can afford to take such risk and provide stepbystep instructions for doing so without paying large fees to brokers and money managers. Stocks are not safe in the long run. Stocks offer the potential for large gains, but they expose you to the risk of large losses. This is true even when your stock portfolio is well diversified across different companies and industries. Don’t believe those who try to convince you that the risk goes away if you hold stocks for more than5, 10, or even 30 years. This is wishful thinking. Inside these pages, you make some important evaluations and ask yourself the most important question of all in relation to investment and risk, which is, "How much can I afford to lose?" With that in mind, you will consider several ways to substantially reduce your risk to its lowest possible level. The objective, by the end of this book, is for you to understand and implement a plan for worryfree investing. The simple formula that governs this entire approach is for you to know and use ways to invest that take less chancesones that are backed by guarantees or that hedge the taking of chances. Why is this important to you? Because investing in ways that take chances (whether in the stock market, 401(k) plans, or mutual funds) can make great gains, but can as readily make great losses(as we all have witnessed). The only way to eliminate worry is to eliminate risk. If making consistent investment gains with as little worry as possible is your objective, then this is the book for you.

Table of Contents



1. New Rules for Investing.
A New Strategy. Bad Advice. New Investments. Six Steps to WorryFree Investing. Summary.

2. Investing with InflationProtected Bonds.
Setting Clear Goals. Why Plan? Inflation Risk. The Ins and Outs of I Bonds. TIPS. How to Compute the Amount You Need to Invest. Summary.

3. Reaching Your Retirement Goal.
The Retirement Goal. Social Security. EmployerSponsored Pensions. Guaranteeing That Your Income Lasts as Long as You Do. Income Taxes. Transaction Costs. Economy of Motion Savings. Summary.

4. Investing Safely for College.
HighPriced Item. Section 529 Plans. Investment Choices and Risks. Free Advice. Summary.

5. Your Home as an Investment.
Is Buying Your Home a Safe Investment? Your Home as a Retirement Asset. Home Equity Conversion Plans. Summary.

6. Stocks Are Risky, Even in the Long Run.
Saving and InvestingRisk and Reward. An Objective View. Why Are Stocks Risky? Misleading Statistics. Simulating Stock Returns. The Effect of Periodic Withdrawals. Japan’s Stock Market CrashAn Example to Remember. Summary.

7. Taking Calculated Risks in the Stock Market.
Who Should Invest in Stocks? Protecting Your Principal. Call Options. Combining Bonds with Stock Options. Convertible Bonds. PrincipalProtected EquityParticipation Notes. Summary.

8. Investment Pitfalls and How to Avoid Them.
Myth 1: It Is Easy to Beat Stock Market Professionals at Their Own Game. Myth 2: You Can Identify the Best Money Managers by Looking at Their Track Records. Myth 3: Stocks Are Not Risky in the Long Run. Myth 4: Stocks Are the Best Hedge Against Inflation. Myth 5: Dollar Cost Averaging Improves Your RiskReward. Tradeoff. Myth 6: An AgeBased Portfolio Strategy Is the Best Way to Secure Your Lifecycle Saving Targets. Summary.

9. Putting It All Together.
Step 1: Set Goals. Step 2: Specify Targets. Step 3: Compute Your Required NoRisk Saving Rate. Step 4: Determine Your Tolerance for Risk. Step 5: Choose Your Risky Asset Portfolio. Step 6: Minimize Taxes and Transaction Costs. Summary.

10. Do You Need Professional Advice?
Many Kinds of Advisors. How to Find an Advisor You Can Trust. Summary.


11. RealLife Examples of WorryFree Retirement Investing.
Paul Younger. Mary and Marty Mature. Nancy and Steve Senior. Summary.

12. Frequently Asked Questions (FAQs).
About WorryFree Investing. Whom Can I Trust? Is There Help Available from the SEC for Investors? How Do the Six Steps to WorryFree Investing Differ from the SEC’s Roadmap to Saving and Investing? Do I Need to Prepare a Personal Financial Statement? What Should I Do If Someone Gives Me a Hot Tip About a Stock or Other Investment? How Can I Tell When Stock Prices Are About to Go Up or Down? What Are the Best Index Funds for Small Investors? Should I Invest in an ETF Instead of an Index Fund? What Is the Difference Between Buying TIPS and Buying Shares in a TIPS Mutual Fund? Is a 529 Plan the Only Way to Save for a Child’s College Education? If I Have Spare Cash Available, Am I Better Off Using It to Pay Off My Mortgage More Quickly or Investing It in Some Other WorryFree Investing Asset? Summary.

13. The WorryFree Toolbox.
Web Sites Related to InflationProtected Securities. Other Useful Tools and Web Sites. Dealing With Money When You Retire. Taking Your Risk Inventory. Summary.