In a new book named ‘Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio,’ Yale professors Ian Ayres and Barry Nalebuff, alleged economists at the University, recommend that people borrow money to invest for their retirements.

It just shows you scoring good on test doesn’t guarantee you have and common sense or knowledge.

Of course since being an economist has nothing to do with knowing how to invest, that fact is irrelevant to their suggestion, as the suggestion itself shows.

Anyone with a tiny bit of common sense knows this is a ridiculous idea, and it won’t work for the vast majority of people, and in fact, would cause them more harm than good financially.

The bottom line in their recommendation is that in the early stages of a person’s life they don’t invest like they should, so they’ll have to make up for it by borrowing money.

The very first fallacy of that argument is the idea you’re behind in something and so you have to catch up by taking even more risk. It doesn’t matter what area of life it is, when you develop that mentality, you’re setting yourself up for failure, as the increased risk of course means you’re increasing the possibility of failure.

In essence they’re saying you have to buy back time, but that is also not that impressive, as the extra cost of buying back that time, is partially eliminated by the cost of the capital to invest in the first place.

While we know in the U.S. money is about as cheap as you can get, it still takes away from your overall investment, and increases the cost before you have a chance to win or lose.

At a young age, it’s best to simply put as much as possible into your 401(k) accounts to get the top match from your employer, and to invest as much as possible in any IRA you have that is sheltered from taxes.

Probably most important, is there is so much discipline and knowledge required to make this happen, that the average person can in no way make it work, and so it should be thrown aside as a legitimate way to prepare for your retirement.

I don’t care what their arguments or logic is, this is just a really bad idea, and when you’re young the last thing you need to do is use a margin account of some sort to invest over the long term.

If you have that type of discipline and knowledge, you already are ready to invest in the usual retirement vehicles without the added expense and risk of borrowed money. Don’t waste your time, energy and money on this foolish advice.

Tags: saving for retirement

This entry was posted on Thursday, April 22nd, 2010 at 4:50 pm and is filed under reviews. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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