Risk Less and Prosper: Your Guide to Safer Investing

Q&A with the Authors

Author Zvi BodieHow can you personalize your investments?
Personal investing is all about YOU--your goals, your resources, your circumstances, and your values and preferences. People often lose sight of this fundamental premise: They start by focusing on investment opportunities--but this is a recipe for getting overwhelmed and distracted. Instead, start by examining yourself. What are your human resources, your career plans, earning potential, entrepreneurial ability and ambitions? What do you value most? Are you willing to postpone consumption for later? What spending you consider essential? Your answers to these questions will shape the investment path that is right for you.

Unfortunately, self-examination is more easily talked about than done. On top of that, your profile is dynamic. It will almost certainly change. To help you over these hurdles, Risk Less and Prosper takes you through six simple but high-impact steps toward picturing your personal investment profile in detail. It gives you target-practice exercises that you can return to year after year.

Common assumption is that investing requires taking on risk. Risk Less and Prosper disputes that. How can one find the balance between risk and safety?
The theory of lifetime investing, as developed by Paul Samuelson and Robert Merton in their canonical 1969 papers, assumes a risk-free asset and a single risky asset. The fundamental issue in investing is how much to invest in safe assets as opposed to risky ones. So investing involves a trade-off between safety and risk in search of higher returns.

In the book, we show you how to find your personal risk set point--or the trade-off that’s right for you. At a minimum, you will need a safety net that is strong enough to cover your most essential needs. You’ll learn here how to go about owning one. Your risk tolerance is also relevant, although it’s a separate and secondary matter. You'll gain some surprising insight into your own attitudes toward financial risk and why they may matter less than you think.

Are you "anti-risk"?
Author Rachelle Taqqu Not at all. We are for risk transparency. People should be told that investing in a diversified portfolio of stocks exposes them to significant risk of loss, no matter how long their time horizon. The conventional notion that risk declines over long time periods is just plain wrong. Paul Samuelson wrote 27 articles on this over the years. He was frustrated that his warnings went unheeded in the popular media.

How can someone determine their investment profile?
Read the experiences of the five men and women in our group. See our chapter on how to find good advice, and try to get some if you can. Set aside time for introspection, and follow the six steps for effective target practice that are spelled out in Part I. Refresh as needed.

Assuming that they have already followed your suggestion to "know yourself," what one piece of advice would you give someone looking to invest in today's markets?
Start by asking what the safest strategy will do for you. That is your benchmark. If you decide to take risk, realize that by definition you can wind up with a worse outcome than your safe benchmark.

Who would benefit from reading your book Risk Less and Prosper
Anyone who is confused, overwhelmed, or dissatisfied with their personal investment situation. People who are concerned about falling short of their basic financial goals. Everyone who believes in the scientific method.