Breakout

Volatility Will “Crush the Stock Market” Says Ben Stein

Breakout

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In no particular order Ben Stein has been a speechwriter for Presidents Ford and Nixon, an actor, the host of "Win Ben Stein's Money," an economist, a columnist specializing in corporate fraud for Barron's, a novelist, a screenwriter, a trial lawyer, a poverty lawyer, a professor, and this guy. The man is a walking bucket list.

His latest book is "What Would Ben Stein Do?" Breakout being a financial show, I started asking him what he would do with his money. Specifically, what would Ben Stein do if he were 30 years old and trying to build a nest-egg in a world where stocks have been dead money for as long as anyone can remember and there's a growing sense that the financial world is rigged in favor of Big Money?

"If I were 30 I'd put a third in short-term Treasuries, very short-term," he tells me in a voice I can only describe as Ben Stein-ish. "Then I'd put two-thirds in the broadest possible index, which would be the VTI, the Vanguard Total World Stock Market Index (VTI) and I'd just add to it every month, even when people were in deep fear."

Buy and hold?!? Dollar cost averaging? Dump more money into this ticking time bomb of a financial system? Stein is ready and more than able to debate every point of the erosion of the global economy, but his trump card for owning equities is simple: "There's no alternative." No, gold bugs, he doesn't think being long commodities is a long-term solution, either. He's actually terrified of gold.

Noting that investors who bought gold as long ago as 1978 would still be "licking their wounds" on an inflation-adjusted basis, Stein says it'll likely be the Chinese who pull the rug out from under gold this time. If and when the Chinese realize hoarding the barbaric metal has been a mistake "that will be the end for gold."

So we're back to stocks as the only place for real savings but it's hard to be very happy about it. I've spent most of my adult life in the markets and even I find it disturbingly frenetic lately. I frankly can't understand why anyone who didn't already have money to spare would be comfortable buying and holding an asset as volatile as equities.

Stein doesn't entirely disagree, saying volatility "is going to crush the stock market as a vehicle of investment for the ordinary citizen... at least for a while." Regardless, he still thinks investors are stuck with equities if they want real returns.

That being the case, Stein would spread his portfolio of stocks "across asset classes, geographically, industries, sectors; the broadest possible diversification." He'd try to minimize his correlation to any specific market and put away 10% of his gross wages every month. "Tithing for yourself," if you will. The goal is self-reliance in your old age, and as Stein sees it, the stakes couldn't be higher.

"Human beings are not that nice," says Ben Stein. "You don't want to have to rely upon them for survival in your old age. You want to rely on money. Money is sometimes cruel, sometimes nice, but don't try to rely on people. Rely on what you've got saved up."

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