Praise for Are You a Stock or a Bond? “Milevsky guides us through the perilous financial wilderness in pursuit of the promised land of a secure retirement. Milevsky has the rare gift to illuminate abstract financial and mathematical concepts in everyday language and experiences. A must-read in this age of the growing burden on individuals to shoulder greater responsibility for their financial security in retirement.” —Steven Siegel, Research Actuary, Society of Actuaries “The author provides a holistic approach to lifetime financial planning and discusses cutting-edge ideas about how you should manage your asset allocation, demand for insurance, and many other financial decisions. In this book, Milevsky demonstrates his unique ability to explain key financial concepts using down-to-earth language.” —Dr. William Reichenstein, CFA, Baylor University “Milevsky brings much recent research to bear in trying to help people use ptg concepts of modern financial economics in integrated personal financial planning. A key element he brings to the forefront here is understanding the role individual labor income, lifestyle, and longevity play in modern dynamic portfolio theory.” —Sid Browne, Ph.D., Brevan Howard Asset Management and Columbia Business School “This book is a must-read for anyone who desires life-long financial security. Those who read it will have a much deeper understanding of how concepts such as ‘human capital’ and ‘risk management’ are not arcane academic terms, but rather concepts that provide an extraordinarily useful road map for creating lasting financial security.” —Jeffrey R. Brown, Professor of Finance, University of Illinois at Urbana-Champaign This page intentionally left blank ptg Are You A Stock or a Bond? ptg This page intentionally left blank ptg A Y RE OU A Stock OR A Bond? CREATE YOUR OWN PENSION PLAN ptg S F F FOR A ECURE INANCIAL UTURE M A. M OSHE ILEVSKY Vice President, Publisher: Tim Moore Associate Publisher and Director of Marketing: Amy Neidlinger Executive Editor: Jim Boyd Editorial Assistant: Myesha Graham Development Editor: Russ Hall Digital Marketing Manager: Julie Phifer Publicity Manager: Laura Czaja Assistant Marketing Manager: Megan Colvin Cover Designer: Sandra Schroeder Operations Manager: Gina Kanouse Managing Editor: Kristy Hart Project Editor: Anne Goebel Copy Editor: Paula Lowell Proofreader: San Dee Phillips Indexer: WordWise Publishing Services, LLC Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig © 2009 by Pearson Education, Inc. Publishing as FT Press Upper Saddle River, New Jersey 07458 FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales. For more information, please contact U.S. Corporate and Government Sales, 1-800-382-3419, [email protected]. For sales outside the U.S., please contact International Sales at [email protected]. Company and product names mentioned herein are the trademarks or registered trademarks ptg of their respective owners. All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America First Printing September 2008 ISBN-10: 0-13-712737-5 ISBN-13: 978-0-13-712737-5 Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education North Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educatión de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Library of Congress Cataloging-in-Publication Data Milevsky, Moshe Arye, 1967- Are you a stock or a bond? : create your own pension plan for a secure financial future / Moshe A. Milevsky. p. cm. Includes bibliographical references. ISBN 0-13-712737-5 (hbk. : alk. paper) 1. Finance, Personal. 2. Investments. I. Title. HG179.M4577 2009 332.024—dc22 2008005434 This book is dedicated to my mother, Chaya Milevsky-Mannes, whose energy has inspired me for the last 40 years. ptg This page intentionally left blank ptg