On the radio with Zvi Bodie

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Posts: 4997
Joined: Thu Mar 13, 2008 11:25 pm
Location: Somewhere between Up and Down

On the radio with Zvi Bodie

Post by Lbill » Thu Apr 05, 2012 11:53 am

Zvi Bodie discusses his views about investing for retirement on a radio interview:


I recommend listening to the entire broadcast, which is about 15 minutes long. For those without 15 minutes of time on their hands, my distillation of some of the important points he makes are these:

1) There is a distinction between saving and investing. Saving refers to how much of your current income you are setting aside for future income. What you do with that amount is called investing.

2) "Investing" is not synonymous with taking risk. Perfectly safe assets are investments just as much as riskier assets, such as stocks. Investing involves making a choice about how much of one's savings to put in safe assets vs. how much to put in riskier assets.

3) The safest retirement income investment currently available is I-Bonds, because they are inflation-protected and will never lose value. Next is TIPS, which are inflation protected like I-Bonds but might lose value unless they are held to maturity.

4) The baseline for retirement saving and investing should be what you will end up with if you are 100% invested in the safest assets: I-Bonds and TIPS. That figure is known and certain. If you buy a 30-year I-Bond or TIP today you know exactly what you'll end up with in 30 years. Currently, the real return on these investments is zero, which means that every dollar invested today will have the purchasing power of today's dollar in 30 years. You are essentially transferring current income to future income on a 1:1 basis.

5) If you are not happy with what you would end up with if you're 100% invested in safe assets and consequently decide to invest in riskier assets, you must realize and accept that you could end up with even less than that. That is the inescapable definition of risk - risk is not an inconvenience along the way; rather it is the possibility that you took a gamble and it doesn't pay off.

6) At today's returns for a 100% allocation to the safest investments, the required savings rate to maintain your standard of living in retirement is quite high, probably impossibly high for most people. That is the reality. You can't change that by taking more risk because more risk involves the chance that you'll do even worse than that. As a result, Bodie believes that full retirement at age 65 is likely to become a thing of the past for most people and they should be planning for that now. Full retirement was possible only for a relatively brief period of time in which there was strong economic growth, generous company pensions and benefits, accompanied by unusually high investment returns. But that is not today's reality.
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard | | "You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs

User avatar
Posts: 6511
Joined: Mon Feb 19, 2007 8:51 pm

Re: On the radio with Zvi Bodie

Post by bob90245 » Thu Apr 05, 2012 12:13 pm

Perhaps Bodie's views were influenced bythe Japanese stock market. That makes sense.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

Posts: 841
Joined: Tue Sep 15, 2009 5:18 pm
Location: DFW, Texas

Re: On the radio with Zvi Bodie

Post by zotty » Thu Apr 05, 2012 12:25 pm

Thanks for posting LBill. Great stuff that helps me stay grounded.
Nadie Sabe Nada

Posts: 1563
Joined: Sun Dec 25, 2011 10:41 am

Re: On the radio with Zvi Bodie

Post by Muchtolearn » Thu Apr 05, 2012 12:38 pm

I have found Brodie interesting, but i am not sure I agree with him. It is true that his favorites (I bonds, TIPS) will keep you at zero with inflation presuming the inflation index used measures your personal inflation. But what if the cost of some things like medical care, nursing homes, etc increase in real terms? One can view his approach from the other extreme and say that his investment ideas are guaranteed to give you no more in real terms than you have now, and of course much less after taxes which will have to be paid at some point (except maybe for ROTH IRAs.) I think its a losing approach.

User avatar
Posts: 5731
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: On the radio with Zvi Bodie

Post by midareff » Thu Apr 05, 2012 1:00 pm

Excellent points for investors with longer time horizons. I retired at age 64 last Friday, with SS and a state pension. A 30 year TIPS Bond does not seem to be an option for me, and the interest rate risk on the VG TIPS Fund at a duration of 8.5 years, with an SEC of -.85 makes me wary.

Post Reply