Worry free investing

What led me down the path of worry-free investing was trying to understand and quantify the risk that one takes when they invest in stocks. Conventional wisdom says that if you have money that you won't need for 30 or 40 years, then that should go into stocks, because the long-term returns from stocks handily beat the returns from other investments such as bonds, real-estate, and certificates of deposit (CDs).

What percentage of the portfolio should be in stocks? What percentage in bonds? How much in cash? What if the stock market doesn't deliver its historical returns? How much do you need to invest in order to achieve a certain retirement goal?

I had posted this as a topic for discussion on misc.invest.financial-plan. Someone pointed me to the work of Zvi Bodie, a professor at Boston University. Bodie has co-authored a book titled Worry Free Investing that takes the voodoo out of the above questions. He tells you how you can meet your retirement goals with very conservative investments. In other words, if you're willing to save more, then you really don't need to take on the added risk of investing in the stock market. I am a very conservative investor so the message of the book really resonated with me. The book is out of print, but you can buy it from his website for $5. To get a flavor for what the book is about, you can preview this article from Bloomberg. He also has a bunch of free short videos on this subject.

If your stomach churns with the gyrations in the stock market, this might be an approach worth considering.

In subsequent posts, I have discussed TIPS and I-Bonds which are two of the worry free investments recommended in Bodie's book.

Disclaimer: I'm not a financial planner and I don't get anything from sales of the above book.