months to a few years, the rate of return may fluctuate a great deal. Thus, a person near retirement age, who

already owns a house, may prefer reduced risk and certainty about retirement income. For young workers, just

starting to make a reasonably profitable living, it may make sense to put most of their savings for retirement in

mutual funds. Mutual funds are able to take advantage of their buying and selling size and thereby reduce

transaction costs for investors. Stocks are risky in the short term, to be sure, but when the worker can look

forward to several decades during which stock market ups and downs can even out, stocks will typically pay a

much higher return over that extended period than will bonds or bank accounts. Thus, one must consider

tradeoffs between risk and return in the context of where the investor is in life.

17.3 How to Accumulate Personal Wealth

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Explain the random walk theory
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