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Bonds: The Unbeaten Path to Secure Investment Growth by Stan Richelson, Hildy Richelson

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Chapter 2. THE ALL-BOND PORTFOLIO

When the market goes up, risk tolerance is infinite, but when it goes down, risk tolerance is often at zero.

HAROLD R. EVENSKY Chairman, Evensky & Katz

OUR POSITION THAT investments in safe bonds is the key to your financial success is a controversial one—especially among brokers. Many investors believe that all diversification results in a reduction of their investment risk. Our concern is that in the name of diversification, these individual investors place a substantial amount of their nest egg in risky investments that they may not understand and ultimately take on more risk than they can actually sustain. Individual forays into risky investments either exhilarate us with their gains or leave us in a puddle of miseries.

It's easy to be misled if one looks only at the historical return of an investment or asset class instead of focusing on the risks involved to realize that return. A higher return means more risk, and more risk means that losses—yes, losses—are more likely. Overlooked tax consequences may severely reduce the expected return of an investment. Up-front, yearly, and back-end fees substantially reduce returns, whether you win or lose.

We believe that individual investors should match their investment assets with their financial needs (for example, retirement and education expenses), rather than speculate in the markets. If safe bonds are the core of your investment assets, you will be able to align your investments with your financial ...

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