Two Yale professors say young people should borrow money to invest in the stock market.

Sounds crazy, I know. Here’s their rationale:

Traditional retirement advice says you should invest 10 to 15 percent of your income.

That money should be divided between stock funds and bond funds according to your age. A 25-year-old might want to be 90 percent in stocks, 10 percent in bonds, for example. A 60-year-old might decide to be 50/50 in stock and bond funds.

The problem with this advice, say Yale business and law professors Ian Ayres and Barry Nalebuff, is that 20-year-olds haven’t saved much yet. Fifty- and 60-year-olds have a higher net worth.

So what?

Although a 60-year-old has reduced the percentage of his portfolio exposed to stocks, he has more money exposed to risk – exactly when he’s least able to recover from a wipe-out.

Conversely, the 25-year-old may have 90 or 100 percent of her portfolio in stock funds. But that’s only a couple thousand bucks.

Jill is 25. She has $2,500 saved for retirement. Ninety percent of that, or $2,250, is invested in stock funds.

Wendy is 60. During the past 40 years, she’s amassed a retirement portfolio of $680,000. Half of that, or $340,000, is invested in stock funds.

When the market drops 3 percent, Jill loses $67. Wendy loses $10,200.

The solution? According to Ayres and Nalebuff, twentysomethings should borrow money to invest in their retirement account.

“It is obvious that youre not well diversified if you invest $100 in one stock, $200 in another and $300 in a third. Youd have less risk investing $200 in each of the three stocks,” they co-wrote in a column in Forbes Magazine. (Theyre assuming each stock is equally desirable).

“The same idea of equal investments applies to investments across time , they say. If you have $100 invested in year one, $200 invested in year two, and $300 invested in year three, you have too much exposure to year three and not enough to year one ”

They argue that people borrow money to buy houses, so why not stocks? (Of course, they neglect to mention that you can LIVE in a house, regardless of its market value. You cant live in a stock portfolio.)

Regardless, the two professors offer an interesting theory. What do you think? Could twentysomethings – counter-intuitively – reduce their risk by borrowing money to invest for retirement?