Ben Stein How Not to Ruin Your Life

Then I decided to ruin it all by filing the past few months of  stock transaction receipts. I get them online as well in the form of confirmations from my broker, but I like to review them in paper. Or, I should  say I once upon a time liked to review them.

Now, they're a catastrophe. 

My losses are staggering even in the most plain vanilla index funds. In the emerging markets and developed markets, investments that had once provided immense gains, the  losses are worse. Even in my beloved RQI, the high-income, leveraged REIT index  fund, the losses are beyond belief.

Instead of just jumping off my  balcony, which wouldn't get me more than a broken leg, I am going to try to make some sense of what has happened.

First, although my colleague, Phil DeMuth, and I always wrote in our books that investors should have a huge slice of bonds, two problems happened to me. One, I had too many corporate  bonds. Although they did not get hit as hard as stocks, they did not hold up well at all. Second, I should have had a huge dollop of Treasury short-term bonds. If I had held half of my savings in short term Treasuries, I would have  lost only half as much.

I do hold a fair amount of cash, and that has been a saving grace. But I kept telling myself I would hold bonds aplenty when I retired not before. But I now see that I should have been holding roughly half in insured cash or Treasury short-term instruments.

I am little by little working towards that goal. The problem is that I do not want to sell when the market is so far down. In fact, I want to buy. The emerging  markets are down to comically low levels (though of course they can always go lower). 

The developed nation stocks are discounting the mother of all recessions and  then some. My beloved RQI is so low that it is yielding roughly 25%. Even if its dividend is cut, which would not be a big surprise, it is still yielding over 10%, a nice thing for an old guy like me.

So, where do I go? I am  trying to do three things:

One, save more in Treasuries, short term of course. Two, I am trying to buy the most beaten down index funds as ETFs,  especially EEM, EFA, VTI, SPY, DIA, and, of course, RQI. Now bear in mind that RQI is leveraged and leverage has been very dangerous lately. But even  if the leveraged part of RQI failed and it had to liquidate (which I do not foresee but then I missed a lot), it is trading far below  liquidation value. So it should pay off more than its recent price.

Phil DeMuth and I have found that when a security is trading for far below its historical  price, it usually has a strong recovery. Or, I can put it another way: if I  liked it at X per share, I have to love it at one fourth of X. That is, unless  the world is coming to an end and I don't see that at all.

The financial crisis is still unfolding but I am  convinced steps will be taken to calm the derivatives and mortgage crises and we will endure the likely coming recession to a brighter tomorrow.

But if we don't, I will have those Treasuries and insured cash. I also like a lot variable annuities that give you a big slice of the upside when and if the  market rallies strongly and guarantees your floor at your entry price. These are not cheap but the hedge they offer is life saving.

Lastly, I am trying to enjoy life so that I am more than the mere composite of the stocks and bonds I own. I hate myself for being so dependent on how much money I have for my self image. I am  going to change that. I do not want to endlessly think of myself as worth x dollars one day and half of that another day. I hope I am more than  that.

As for retirement, well, I get sick and bored if I am not on the  road most of the time anyway making new friends and talking to good people.

But to get back to money: history tells us we can have long dry  spells in stocks. It also teaches that markets can way overshoot on the way down (and on the way up). Unless something even more horrible than the derivatives  crisis lurks out there, stocks look cheap now. But cash and Treasuries offer peace and the ability to sleep at night.

Yes, stocks are more fun on  the way up, but on the way down, they can ruin your whole day. One more thing: the reason I am not suicidal right now is that I have a wife who would be fine  with it if we had to live a more modest life style. Try to find a life companion like that.