Saving for Retirement? MIT Sloan Prof Says ‘Sell Your Stocks’

zvi-bodieInvestors still heaving over mega losses to their retirement accounts might want to heed the advice of MIT Sloan School of Management visiting professor Zvi Bodie. Many financial advisors flummoxed by recent events have a “hang tight until the market recovers” attitude.  But Bodie, also a professor of management at Boston University, has studied retirement strategies since he was a graduate student at MIT in the early 1970s, and says “Stocks are risky. To rely on them for what you really need is a bad idea.”

His advice: Unless you have the heart of a high stakes gambler, get out of stocks now and put your retirement money in inflation protected government bonds and similar instruments. These investments are immune to the kind of calamity Wall Street experienced last year, and they are guaranteed to keep pace with inflation, a potential problem in the future, according to Bodie.

In an MIT Sloan interview, Bodie urges small investors to choose the safer path to retirement saving, since we really don’t know whether the market has stabled out or will crash another 40%. Either scenario is possible, but one thing we do know for sure is that the stock market hasn’t become any safer now. Bodie compares those still holding onto stocks to Las Vegas gamblers who lost big but are staying at the table trying to win it all back.

So how should you invest your hard-earned income for retirement? Bodie favors Treasury Inflation-Protected Securities, or TIPS, and Series I Savings Bonds, or I-Bonds. The US government began offering TIPS in 1997 and I-Bonds the following year. Bodie says he follows his own advice and did not lose a penny in the recent market meltdown.

If you fear you’ll be eating cat food in your golden years because of recent losses, Bodie has some suggestions. Postponing social security will boost a retirees’ annual income by a guaranteed eight percent a year, he notes. And hey, more people are able and wanting to work beyond the traditional retirement age, so continue to invest in yourself.  If you’re still tempted to stick a toe into the stock market, well, good luck.

“If you can’t take the heat, get out of the kitchen,” Bodie says. “You could lose what little bit you have left.”

(photo credit: zvibodie.com)

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