Ask Money

A margin of safety

Chris Farrell Oct 23, 2008

Comment: My husband and I are respectively 81 and 76. Luckily my husband is very conservative and has invested largely in CD’s, bonds and TIPS. About 6 % of our networth is in stocks. We live frugally, having sold our house in Connecticut in 2005, and leased a rental apartment in Milwaukee. So we are not likely to be greatly affected by the downturn. Regina, Fox Point, WI

Answer: I know there is no question here. But I’ve posted Regina’s comment because it shows the payoff from managing finances conservatively. Their situation echoes remarks by Jack Bogle, the octogenarian founder of the mutual fund giant Vanguard, in a recent conversation I had with him: “I am a believer in diversification. You buy index funds for stocks, and your bond portion should equal your age. This is how I invest, so I know how little it’s hurt me to have a substantial position in U.S. bonds.”

Whether young or old, everyone needs to build in a margin of safety. After all, you can’t get rid of the uncertainty. As Don Quixote de la Mancha said: “Tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.