Ben Stein How Not to Ruin Your Life

Are we at the bottom of the recession? The stores I see are empty, except for grocery stores. The car dealers are disaster areas. But the airports are mobbed and hotels are jammed where I travel, which is pretty much everywhere.

But more important than my anecdotes are statistical data. Inventories are shrinking rapidly, usually a good sign in a recession because they then have to be filled up again. Real estate sales are moving up sharply in some highly distressed areas, and prices have stopped falling in some of the same areas. The new unemployment numbers are still extremely distressing but nowhere near as bad as they were expected to be just a few weeks ago. They show a definite moderation in the rate of new layoffs.

There is some firmness in prices of minerals, and growth has resumed for several of our largest trading partners, including Canada and China.

Recovery Could Be Near

So while predicting the future is impossible, to put it mildly, and while false dawns abound in economic life, the era of nonstop disastrous economic news seems to be over, at least for now. That often portends a recovery.

So as we survey the wreckage -- the stock market still, even after the stunning recent rally, down close to 40 percent from its October 2007 peak; jobs nearly impossible to come by for many college and grad school graduates; entire regions of the nation laid waste; retirement plans for an entire generation simply demolished -- what have we learned in the personal-finance realm?

One, we must plan for not just a poor outcome but for the possibility of outright disaster. Whatever the Monte Carlo simulators told us about outcomes was wildly optimistic. Even when we were in stunning prosperity, as we seemed to be in the spring of 2007, events were moving toward true calamity. Very few of us were prepared. We were like the passengers on the Poseidon, partying hearty as a murderous wave was about to capsize our hopes and dreams.

We have to own enough federally insured cash, short-term Treasury instruments, and NCUA-insured credit union accounts to tide us over during truly horrific periods that can last for years. This recession has already gone on for close to 18 months. Even if we have hit bottom, we have no signs yet of a robust recovery (except for fantastic growth in the money supply, which will eventually mean either recovery or inflation or both). That means we could be in the muck and mire for years. This means we must have liquidity -- safe liquidity -- to get us through bad days.

A Winning Strategy

This, as I have said before, is the premise of my pal Raymond J. Lucia's "buckets of money" strategy. This very sensible plan has the investor "bucketized" so his or her liquidity can keep them going until growth in stocks resumes. It has been the only strategy I have seen that works in true disasters like this one. It makes sense, but you have to look into it and decide for yourself.

Second, we have to apologize to the insurance companies. For years they have been offering us spectacularly good deals on variable annuities with guaranteed floors to protect us against collapses such as the one we have had recently. They have been offering us not only floors but actual guarantees of minimum growth of the portfolio. Too many of us turned up our noses at the offers. Now the offers are not quite as good as they were, but we still know that we need -- desperately need -- guaranteed income in our declining years. The insurance companies can sell it to us. If we do not have it yet, we should get it.

Be Diversified

Third, we have to be even more diversified than we thought -- once we have enough cash to make us sleep at night. Some investments have performed far better than others, although everything but cash has basically been murdered.

Fourth, we have to live sensibly (here, as I have noted, I do not practice what I preach). "There is no calamity worse than lavish desires," as the saying goes.

Fifth, we have to know when to sell and when to buy. Real estate has gone through an agonizing correction. It cannot go on forever. The times when there is total pessimism about houses are often the best times to buy. If you are highly liquid and have a secure job, now may be the moment to do so. In every housing crash of my lifetime, those who bought when there was blood in the real estate agents' offices have come out happy years down the road. No real estate crash lasts forever, and this one won't either. Are we at the very bottom? We don't know. We do know we are a long way from the top.

No one can tell the future. But we can tell a bit about the past. Security has now shown itself to be a rare and beautiful thing. Very, very safe assets are how we get there economically. This has been a terrifying ride, and we can hope it's almost over -- but we can also hope we have learned something about the past and the future.