Ben Stein How Not to Ruin Your Life

Wow. What a time. Housing is correcting rapidly, but from a super-high level. The stock market is correcting rapidly, too, but also from a very high level. The dollar is collapsing. As I write this, oil is hovering near $100 a barrel. What to do?

First of all, panic.

Natural Cycles Unnaturally Exploited

Just kidding -- don't panic.

The stock market fluctuates. It's had five good years in a row, with some of them very, very good. Even with recent corrections, at the of end of 2007 it was higher than it was at the beginning of 2007, and dramatically higher on the Dow than it was at its peak in 2000 -- and that doesn't include dividends.

Given the intense feed of negativity into the market from the media and short-sellers, it's not the least bit surprising that the markets would fall. Given the losses from subprime and its related indices at banks, and their reluctance to loan after many years of loaning too much, it's not going to be a total shock if we go into a recession. And if we do, the markets will fall more -- maybe a lot more.

Patience is a Virtue (So Is Cash)

This isn't a development to strike terror into your hearts -- if you're a long-term investor, it signals a time to buy. (As I've said many times, if you're a short-term investor you can just skip my column.) The history of stock market investing is unequivocal on this point: When the market is low, when the economy is in a recession, it is -- in the long run -- by far the best time to buy.

So continue to buy the diversified domestic funds, especially the FSTVX, and its equivalent total market fund at Vanguard. Continue to buy the emerging markets (which had a super year in 2007) in the form of the EEM or the ADRE. Let me make this totally clear: The emerging markets won't just go up in a smooth line -- they'll fluctuate. They'll fluctuate a lot sometimes, and sometimes in a jaw-droppingly downward direction. Keep buying in a patient, thoughtful way, possibly setting it on autopilot.

Keep buying the developed markets in the EFA, also in a disciplined, ongoing way. Europe has its problems for certain, and so does Japan. But they benefit from the falling dollar and are extremely big economies, and tend to fluctuate a lot less than the EEM as well. But they will fluctuate. Stay in them patiently and you'll be rewarded.

The whole reason you get paid so much more to be in the stock market than in cash is that it fluctuates so much. You get paid to be scared. But do follow the good advice of my pal Ray Lucia, and keep plenty of cash on hand so you won't have to sell your stock (or at least not much of your stock) at a low price. Cash on the order of a year's living expenses is a sensible idea. It makes a lovely cushion.

Getting Your House in Order

Now, about housing: I fully respect the people who say that housing is going to fall even further than it already has. In my beloved Southern California, housing is falling far and fast, so I see it all around me. But buying a home isn't like buying a stock or a barrel of oil. A home is a unique item -- it's about the heart as much as the head. It's about falling in love with the place in which you live.

In my experience as a homebuyer, there are so few homes that one really falls in love with that if you find one you do love, you should snap it up (if you need it and can afford it). I urge this even though housing is likely to fall even further.

There's some economic rationale to this course of action as well. The history of home prices tells us that when housing reaches a peak, it falls (of course), but then when the next wave comes along, that wave lifts housing higher than it was at the last peak -- often far higher. In the meantime, you get to live in the home rent-free -- with the "imputed rent," which is sort of a dividend composed of the rent you would have had to pay if you'd lived in the home as a renter. (If you owned a bond with that same yield as your imputed rent, you would have to pay tax on it.)

For house flippers, these are really hard times, and I can only say that if they're highly leveraged, get out of the leverage as fast as you can. If that means selling at a loss, it's preferable to an even bigger loss.

Housing cycles, by the way, are usually very long ones. This time may be different, but usually they last five or more years, so don't expect a turnaround soon. (I could be wrong, and in this case I hope I am.)

Booms Follow Busts

Again, don't panic. We've been through many recessions since World War II, and we always get through them and go on to a brighter future. And we always look back and say we wish we had bought more stocks and more real estate when times were hard.

As for oil, there's no harm at all in buying a chunk of the XLE, the index fund for energy securities. It's had a phenomenal move in the last few years, and usually that spells correction. But over very long periods, you'll do fine.

My sainted mother used to say she bought and held stocks "sub specie aeternitatis." I may have the Latin wrong, but it basically means "for the very long run." It made her a well-to-do woman, and it will work for you, too -- unless there's nuclear war, and then none of us has to worry.

Ben Stein has no financial interest in the products mentioned in this column, except as a private investor.