If you really want to invest in Iraq...

It's not easy, and you have to wonder if it's worth the effort, but if you're still interested, Answer Guy George Mannes can tell you how.

Subscribe to Personal Finance
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By George Mannes, Money Magazine senior writer

george_mannes.03.jpg
Send us your investing questions to: answer_guy@moneymail.com

NEW YORK (Money Magazine) -- Question: A friend told me the Iraq Stock Exchange is open for business. How do I buy shares that trade there? Also, how safe and secure is it? - Bryce Frederickson, Lawton, Okla.

Answer: Investing in Iraq takes some effort. Given the risks and costs, though, maybe that's just as well. The ISX didn't respond to e-mails, so Answer Guy consulted with Björn Englund, manager of the British Virgin Islands-based Babylon Fund - not open to individuals in the U.S. - which invests in Iraqi securities.

You'll have to open an account with an Iraqi brokerage (Englund uses Commercial Bank of Iraq). And to do that, you'll first need to get a copy of your passport notarized, then certified by Iraq's U.S. embassy. (For more information go to isx-iq.net, where you can try to decipher the exchange's baffling instructions.)

Once you've got an account, well, you're not in Oklahoma anymore - and not just because you're investing in a war zone. Only a minority of the 90-odd listed stocks trade even once a week. Commissions and spreads between bid and ask prices are large; company news, says Englund, "is late or absent."

The fund manager figures the ISX should get a boost once telecom and oil service companies start trading. Still, he warns, you should invest money in Iraq only if you won't mind losing it.

Question: Boston University finance professor Zvi Bodie says that instead of investing in stocks for retirement you're better off with a portfolio that's 95 percent TIPS and 5 percent S&P 500 call options. Is he right? - Will B., San Francisco

Answer: The strategy is thought-provoking, but it's a hassle to implement, as the professor acknowledges. "Aside from me," says Bodie, "I don't know of anyone who's doing it in my circle of friends."

At the root of Bodie's idea is a key insight about risk. It's commonly said that while stocks are dicey in the short run, risk diminishes over time, since stocks have always appreciated over periods of 20 years or more.

Not exactly, says Bodie. True, the probability you'll meet your investing goals increases over time. But the consequences of a crash get worse. One that occurs a year before you retire, to illustrate, will hurt far more than one 30 years earlier.

So how do you reap gains while preventing losses? You put most of your money in Treasury Inflation-Protected Securities (TIPS), says Bodie; that will protect your principal and net you a modest return above inflation. You invest the rest in call options on a stock index - which give you the right to buy the index at a preset price by a certain point in the future.

LEAPS, the type of option Bodie suggests, let you bet how high the S&P 500 will rise as long as three years away. If the S&P falls short, you've lost what you spent for the option; if it's higher, you get part of the upside. (For more, read his book Worry-Free Investing.)

The logistics, however, are messy: Deciding which options to buy isn't simple; you'll have to weigh tax and transaction costs with the bonds. Until a simplified Bodie system is here, stay with a stock/bond mix that doesn't take on more risk than you can live with. To top of page

Send feedback to Money Magazine
Photo Galleries
6 products to keep the skies friendly Plane travel can be stressful, especially during the holidays. These things can help keep the peace among travelers. More
2014: Helluva good year for stocks The bull market has been going for 2,115 days. If you put you're money in stocks, it's been a very happy year. More
7 up-and-coming foodie destinations These seven cities are seeing a growing interest in local food boost the economy -- and produce some seriously tasty eats. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.