Reischauer: Second shot: What is risk?
- Date: Tue, 18 May 1999 00:55:25 -0400 (EDT)
- From: Andre Dermant <adseale@aol.com>
- Subject: Reischauer: Second shot: What is risk?
Mr Reischauer asks:
Would personal accounts place an unacceptable amount of risk on
some individuals who are ill prepared to bear this risk? And not
too unexpectedly he answers: yes.
I should like to suggest that before placing the idea of risk in
such a negative context, he should be more specific about its
definition:
1) As we all know there is risk in investing our money in bonds:
it is the risk of inflation;there is risk in placing our money in
a money market fund: it is the opportunity cost; there is risk in
investing in real estate, it is the lack of liquidity; there is
risk in investing in utility stocks it is the possibility that
interest increase significantly.
2) As we all know also, there are ways to minimize risk to acceptable levels:
a) diversify investments;
b) invest over long periods of time;
c) use dollar-cost averaging;
d) use asset allocation techniques whereby the ratio of stocks
to bonds decreases as a person gets older.
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What does Mr Reischauer mean by "unacceptable risk"? "Ill-prepared"
individiuals have been using IRA's and 401(k) plans with great
success. As far as I know, no employee who has used these plans
has ever complained about it. I think Mr Reischauer is doing a
disservice to the community by using such bias.