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Worry-Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals [Hardcover]

Zvi Bodie , Michael Clowes
3.1 out of 5 stars  See all reviews (7 customer reviews)

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Book Description

May 12 2003
Millions of Americans have been betrayed by the stock market, and are more worried than ever about saving for retirement or their children's college education. In Worry-Free Investing,two of the world's leading investment experts outline an extraordinarily safe approach to investing that virtually guarantees the money will be there when it's needed. The authors first demolish the conventional wisdom that a diversified stock portfolio, while risky in the short-term, is safe in the long-term. Next, they introduce under-publicized investment options that are protected against inflation; and explain little-known investment techniques that are ideal for individual investors seeking to limit risk. Finally, for investors that are willing to take carefully calculated risks, they present a sensible approach to increasing potential gains through index funds and index options. Clear, easy-to-understand, and endorsed by Nobel laureates in economics, Worry-Free Investingis the only book for individual investors determined to protect their assets in an era of economic upheaval.

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From the Inside Flap


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, worry-free way to beat inflation--invest 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 tax-advantaged CPI-linked 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 long-term goals. Yet today, only a few years after they came into existence, many Americans are not even aware that such securities exist. We provide step-by-step instructions for using them to safely achieve your financial goals.
  • There are ways to invest in inflation-protected retirement-income contracts that are guaranteed to last for as long as you live.
  • There is a worry-free way to invest your savings for a child's college tuition--buy tuition-linked Certificates of Deposit (CDs). These tax-advantaged, government-insured accounts are even safer than CPI-linked 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 Exchange-Traded Funds (ETFs). We help you decide if you can afford to take such risk and provide step-by-step 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 worry-free investing.

The simple formula that governs this entire approach is for you to know and use ways to invest that take less chances--ones 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.

From the Back Cover

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

"Worry-Free 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 state-of-the-art 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 worry-free financial planning. Considering the thousands of books available on equity investing, there is a remarkable shortage of information on risk-free bond and alternative income asset classes. This unique book will single-handedly 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, Do-It-Yourself Investor

"Bodie and Clowes' book is the most timely personal finance book of the year. Retirement investors, severely affected by the dot-com 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 Worry-Free Investing, two respected investment experts outline the ideal investment program for every investor worried about asset protection. Drawing on three powerful risk-reduction strategies, their plan virtually eradicates risk--and is virtually guaranteed to beat inflation!

The authors first demolish the myth that a diversified stock portfolio is your safest long-term investment. Next, they introduce U.S. government-backed investments that are protected against inflation and outline little-known investment techniques that are ideal for risk-averse investors.

Once you're sure your fundamental needs are covered, Worry-Free Investing helps you decide when to consider modest risk in the pursuit of higher returns--and how to strictly control whatever risk you do take on.

Clear and easy to understand, Worry-Free 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, inflation-indexed U.S. government investments you've never heard of
How to be sure of your returns--regardless of the markets or inflation

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

Diversification isn't enough
Risk-reduction 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

Inside This Book (Learn More)
First Sentence
The conventional wisdom about investing says that a diversified portfolio of stocks is not risky in the long run. Read the first page
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

Most helpful customer reviews
3 of 3 people found the following review helpful
4.0 out of 5 stars Brilliant, important, imperfect May 25 2003
By A Customer
Investment authorities have long recommended diversified portfolios of stocks, bonds, and cash as the best way for investors to pursue their financial goals without courting too much risk. In *Worry-Free Investing*, Zvi Bodie and Michael Clowes cast a gauntlet before this conventional wisdom. Most investors, they argue, should forget about traditional asset classes--especially stocks--and should abandon traditional approaches to risk management, like building a diversified portfolio and gradually decreasing its allocations to risky assets over time. Those saving for retirement or for a child's college education should instead invest in "risk-free" assets, such as inflation-protected bonds and annuities, and certificates of deposit with yields indexed to the cost of college tuition. By relying exclusively on such instruments, the authors contend, investors will never risk losing their nest eggs (as they would with stocks), will ensure that their purchasing power never diminishes (as it might with bonds or cash), will stand a much better chance of achieving their financial goals, and will sleep soundly at night. They will become, as the title promises, "worry-free."
While Bodie has been making his case in academic journals for several years, this book marks his first attempt to reach the masses. To both authors' credit, their manifesto is remarkably accessible--much more so than most investment books aimed at a popular readership.
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2 of 2 people found the following review helpful
3.0 out of 5 stars Investments Lite May 31 2003
The central theme of this book is that stocks are risky, even for long time horizons. In other words, you can't rely on "time diversity" to reduce risk. If you are depending on harvesting capital gains from a stock dominated portfolio to fund your retirement, you might outlive your assets. But, what about that more than 10% average return on the S&P 500 since 1926? The key word here is "average." The average is not necessarily what you will realize over any given span. It took decades for the Dow to return to its pre-depression level. The Dow also went nowhere from the end of the 1960's until the beginning of the 1980's. But at least you got a decent dividend yield in those days. That's why the net returns were generally positive in the past. In fact about half the historical return on the S&P500 was due to dividends. But today's S&P dividend yield is less than 2%. That's too small to compensate for the price risk. There are other reasons why future stock returns might not reach anything like 10%, and the book provides some discussion as to why. However, the authors are short on details, a little too short. If you want a more through discussion, see "Valuing Wall Street," which pretty much takes the same position with respect to the future prospects for stocks. The authors recommend inflation-indexed US Treasury bonds, both TIPS and I-bonds as the core of your retirement portfolio. This was good advice several years ago, but not today. The base rate on these bonds is much too small. Can you live on a 1.5% (real) return? So to some extent this book is already obsolete even though it was just published! Nevertheless, it's a valuable consciousness raiser for those who might not appreciate the flaws in the "cult of equities. Read more ›
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1 of 1 people found the following review helpful
3.0 out of 5 stars Good Case Overplayed Dec 2 2003
Investors still numb from their stock market losses in recent years will find some solace in the message of Worry-Free Investing by Zvi Bodie and Michael J. Clowes. They argue that stocks are "not safe in the long run" - a dismissal of Wharton School Professor Jeremy Siegel's extensively documented work on the subject. It is the nature of equity prices to be uncertain. The unpredictable risk of future stock market returns stems from the unexpected, 'random', flow of information that changes investor's perceptions of a company's value. Their argument is a bit heavy-handed. Equity prices may move unexpectedly in the intermediate term, but over the long run they appear to be positively linked with advances in our economy as measured by our GDP and mirrored in our standard of living. That should give some reassurance to long term investors, but the connection gets no mention here.
The authors make the case for investing in inflation adjusted, government protected I Bonds and TIPS (Treasury Inflation-Indexed Securities also called Treasury Inflation Protected Securities). Focusing on the major goals of saving for retirement and providing for college education costs, Bodie and Clowes show how much an investor needs to save today. If the calculations seem a bit heady, readers are referred to the book's companion web site 'calculator'. At the heart of worry-free investing as defined by the authors is the defense of an individual's future buying power rather than the building of incremental wealth.
Stocks have been widely touted as the only reliable hedge to inflation. However, during the 1970's sustained inflation ravaged stock market returns on an (inflation) adjusted basis. Had TIPS and I Bonds existed, they would have outperformed a diversified basket of stocks.
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