Zvi Bodie on the Safety of Stocks in the Long Run

The notion that stocks are risky in the short-run but safe in the long run is a dangerous financial fallacy according to Boston University professor Zvi Bodie.

Professor Bodie has been communicating this view consistently for many years, and the financial crisis has provided strong support for his argument.

The gist of Bodie's view involves that impact that equity market volatility can have on people who are near retirement or recently retired. 

Bodie warns of the relationship between investing in stocks and sequence of returns risk.  In other words, what happens if the end of your long run planning horizon happens to coincide with a bear market?

Millions of Baby Boomers are currently dealing with this reality.  Any equity market exposure (investments in stocks) has been damaging over the past couple of years, but it is a potential financial catastrophe for someone who just retired and needs to live off their financial assets for the next 30 or so years.

Younger people presumably have time to catch-up.  Boomers, however, need to start drawing income from that depleted pool of assets.

Again, Zvi Bodie has been delivering this important message for years.  He is one of the more interesting and original thinkers in the areas of personal finance and retirement planning.  He provides viable alternatives (he heavily favors TIPS or U.S. Treasury Inflation Protected Bonds) that support his criticism of conventional financial wisdom.  His books are highly recommended, and he is frequently interviewed and easy to follow in mainstream press.