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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Don't Buy the Panic

by Ben Stein

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Posted on Friday, January 4, 2008, 12:00AM

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.

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176 Comments

Showing comments 6-35 of 176<< PreviousNext >>
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  • Yahoo! Finance User - Monday, January 28, 2008, 12:40PM ET  Report Abuse

    • Overall: 1/5

    Never listen his advice! I doubt he is even less than 50% right - than he would be wrong more than one half times and you could just reverse his advice to get the right one! He has advised so many people for so long into stocks when it was damn too expensive, in view of the challenges! He recently mentioned that stock prices are not at high levels - based on P/E of 20!!! This is totally in contradiction with his 1st par in this article.

  • Neks - Sunday, January 27, 2008, 10:42AM ET  Report Abuse

    • Overall: 4/5

    Panic? Are you kidding me? The people who panic make the prices go down further for me. Thanks. I can handle another 5 years of bargain-priced stock. I've got about 40 until I plan to retire. What's important is to secure a good job while you're still able - preferably one with a pension - so that you can afford to purchase these bargains! I think Mr. Stein said it best: short of a nuclear war, the markets will be up again eventually. Fact is, despite what foreign governments say, our world is so interconnected that it is in every nation's best interest that the US continue to prosper. Things will eventually turn around - hopefully long enough for me to retire or skip country before the US takes the permanent down-turn ;) If you're worried about being able to make it, try joining the military. The pay sucks, but advancement is fast and the benefits and the pension are hard to beat! ;) I haven't worried about my job/financial/family/retirement/etc/security for over 8 years now...

  • JAMES - Wednesday, January 23, 2008, 1:25PM ET  Report Abuse

    • Overall: 4/5

    I am heeding the advice I have heard so often. Buying more as the market goes down. Been through this before and in it for the long haul. As you have stated the values will eventually climb upward for the long term investor!

  • Yahoo! Finance User - Tuesday, January 22, 2008, 9:44PM ET  Report Abuse

    • Overall: 1/5

    don't panic? the price of gas has more than doubled, the housing market has plummeted faster than a hick town fair, and now our "financial experts" need to be bailed out by the Fed. don't panic? what great advice! If you believe this article, there is a good chance that you have faith in our current administration. they are in the process of leaving the worst legacy any administration has ever left! don't panic Ben? tell that to all of the people who won't be able to retire for at least another 5 years because of the spectacular job our prez is doing right now. but don't panic. gas hasn't hit $6 a gallon yet, don't panic, everyone has $250,000 put safely into cd's, just stay cool, everything will be ok. meanwhile, the dollar is getting stomped by the Euro (thank God for the Europeans!) our trade deficit is at an all time high, and the cost of health insurance triples daily. sound about right?

  • Yahoo! Finance User - Monday, January 21, 2008, 9:40AM ET  Report Abuse

    • Overall: 1/5

    I don't think it's a time to kidding

  • Yahoo! Finance User - Friday, January 18, 2008, 7:34PM ET  Report Abuse

    • Overall: 5/5

    Fantastic article! Its so simple looking long term! I pulled out just over 14,000 because I thought the market had come up to quickly. Been slowly getting back in in the past few months with my average cost of the Dow at 12,900. Like Ben says, buy low. Look back at the 2000 bubble, wouldn't it have been nice to have bought when it dropped to a base? Hey if it drops more so what, I'm looking long term (5 years from now). Lets see where the market is then! What do you think?

  • steel - Friday, January 18, 2008, 2:52PM ET  Report Abuse

    • Overall: 5/5

    Good solid advise that the average individual investor should adhere to.

  • e - Friday, January 18, 2008, 1:29AM ET  Report Abuse

    • Overall: 5/5

    I just wish I had some insight toward the future short term (within six months) of the S&P 500 Index.

  • Yahoo! Finance User - Wednesday, January 16, 2008, 10:06PM ET  Report Abuse

    • Overall: 1/5

    Hey Ben, let me know when it's time to panic. I'll be sure to tank the Dow another 30% just for you. LOL!

  • Yahoo! Finance User - Tuesday, January 15, 2008, 11:57PM ET  Report Abuse

    • Overall: 3/5

    We've reached correction stage now. Lower than expected earning reports and a mild recession will take us to a bear market, another 10% down. Have patience and look for good buying opportunity with the S&P between 1200 - 1250 later this year!

  • John - Tuesday, January 15, 2008, 1:59PM ET  Report Abuse

    • Overall: 1/5

    to the commenter below...try buying below 1150 ...18 months from now.

  • Yahoo! Finance User - Tuesday, January 15, 2008, 12:58PM ET  Report Abuse

    • Overall: 5/5

    i for one am ECSTATIC about todays nice drop. S&P below 1400 is awesome. I'm buying partway further in now cause theres no way of knowing whether we'll drop a lot more or not... but I certainly hope so!

  • Julian - Monday, January 14, 2008, 4:17AM ET  Report Abuse

    • Overall: 5/5

    The messages in this article are great, however it is interesting to observe that nearly everyone is agreeing that now IS the time to buy. Is the result of this not that the market is still generally optimistic? Do you see the paradox? If everyone was complaining about this article being far too optimistic and everyone was saying that they are going to wait for the market to drop far before buying, then this would be a better indication that the market was particularly. With that said, the valuation looks reasonable now - perhaps overpriced a little but good enough to expect better returns over the next few years than other places I can think of for holding your money.

  • MichaelC - Sunday, January 13, 2008, 11:04AM ET  Report Abuse

    • Overall: 5/5

    Ben is right on. Like the old saying goes, "When is the best time to invest?" "Twenty years ago, and today." We're not on the brink of disaster, and every turn and twist in the economy brings opportunity.

  • Yahoo! Finance User - Saturday, January 12, 2008, 9:03PM ET  Report Abuse

    • Overall: 4/5

    Very nice attitude Mr.Stein. we will get through this when People stop panicking! take advantage of this opportunity People if you can. those who are in trouble, good luck!

  • Christian - Saturday, January 12, 2008, 3:38PM ET  Report Abuse

    • Overall: 5/5

    Extremely good sound advice. I've been investing for over 10 years now and I continue to follow the principles that Ben explains. Everytime the market drops big my gut is telling me not to buy but my head is telling me to just do it and i'll be rewarded in the future. In the past I've bought stocks on the way up and always felt good doing it but regretted it later. Just listen to Ben. Buy when the market is low. Yes it might go down a little further but that's ok. In the long run you will be glad you did. Works everytime

  • Yahoo! Finance User - Friday, January 11, 2008, 7:38PM ET  Report Abuse

    • Overall: 4/5

    jeez. the people crying about the 100k minimum must be joking. you get rated 1 star if you mention an extremely low-cost fund with a high minimum? or is it because he didn't give the ticker for the 'equivalent total market fund at Vanguard'. these people are smart enough that they can look up a fund by its ticker and make note of its minimum investment, however they pretend to not be able to search yahoo, vanguard or morningstar to find vti or vtsmx? to quote mr. don rickles, 'hello dummy!'.

  • Yahoo! Finance User - Thursday, January 10, 2008, 4:39PM ET  Report Abuse

    • Overall: 1/5

    Ben should focus on how to pull his head out of butt and understand the audiance is most likely a majority of middle class. Suggesting a fund with a min investment of 100K does not serve 99% of the readers, right? Sure, we will pull cash out of our large bank accounts after payinig college expenses for our kids! Ha! Go back to TV comedy where you belong you pompous ass!

  • Greg - Thursday, January 10, 2008, 2:49PM ET  Report Abuse

    • Overall: 2/5

    "So continue to buy the diversified domestic funds, especially the FSTVX, . . . ." Which has a $100,000 minimum initial investment requirement. Are you kidding?

  • Rohit - Thursday, January 10, 2008, 1:41PM ET  Report Abuse

    • Overall: 5/5

    Excellent..

  • Todd - Thursday, January 10, 2008, 2:13AM ET  Report Abuse

    • Overall: 5/5

    Wow! It's easy to see that the last comment came from someone who watches a lot of TV. Maybe he/she should pick up a history book. I'll bet Ben is listed in there somewhere. Sorry Ben. That wasn't about your age. Keep up the great work, It's invaluable, informative, timeless and fun.

  • Yahoo! Finance User - Wednesday, January 9, 2008, 8:45PM ET  Report Abuse

    • Overall: 1/5

    As a licensed advisor, I can't believe people actually listen to this guy. And how long has this actor been in this industry? And what are his qualifications? Mind-boggling.

  • Chase - Wednesday, January 9, 2008, 5:11PM ET  Report Abuse

    • Overall: 5/5

    Always refreshing to read Dr. Ben's viewpoints ... amid all the the HOOPLA and THREATENING NOISE its good to invest in value when others are selling :-)

  • na - Wednesday, January 9, 2008, 3:29PM ET  Report Abuse

    • Overall: 1/5

    Thanks Michael J for mentioning Ben said not to worry about subprime mess March 2007. Now I know not to trust this guy. Bring Penelope Trunk back Yahoo. "(CBS) Despite all the bad buzz about subprime mortgages, Sunday Morning correspondent Ben Stein says the economy is strong and that the amount of foreclosures is small in relative terms. " http://www.cbsnews.com/stories/2007/03/18/sunday/main2581859.shtml

  • Nemo - Wednesday, January 9, 2008, 1:30PM ET  Report Abuse

    • Overall: 4/5

    Waaaahhh ... the value of my house has plunged 10%! Yay ... the price of the house I'm going to buy has dropped 10% ... the housing collapse in itself isn't such a tragedy; particularly since there was a shortage of workers there for a while, and those workers have been at least partly absorbed elsewhere. I'm much, much, much more concerned about the war - its cost in trillions of dollars, in hundreds of thousands of lives (yes, the Iraqis count too!!!) and in that intangible goodwill we once had in abundance - the same goodwill WalMart is spending billions to recapture, having squandered it so thoughtlessly in dishonest, illegal practices. People, what we're paying a price for now is EVIL. Serves us right.

  • wallacem - Wednesday, January 9, 2008, 1:16PM ET  Report Abuse

    • Overall: 5/5

    i bought my condo on ocean across from the beach in long beach and paid $35500 cash for it.it peaked at around $450000 and i've lived here all this time,no morgage,no other debt and property tax $1000/yr #13 people who finance everything at rates of interest lose most of their income and are living a life similar to being slaves.

  • Yahoo! Finance User - Wednesday, January 9, 2008, 12:58PM ET  Report Abuse

    • Overall: 3/5

    As keynes once said "In the long run we're all dead." Timing is everything. If you learn to time the markets you wont have a need to invest in the long-run. If you're a slow fat lazy american who gulps cheeseburgers and fries all day long, well then do what you usually do. Do your due diligence, don't fall in love with a house because you could always get a contractor to make one for you anyway in that style and don't buy just because something went down. Bottom line: Do your homework!

  • LONGTERMER - Wednesday, January 9, 2008, 12:12PM ET  Report Abuse

    • Overall: 4/5

    As the name indicates, I invest for the long term (note invest and not speculate); my first trade in 1976. I have seen one crisis after another batter the market. I have read the gamut of books/newsletters from financial advisers or those who think they are. Having so said, and UNLESS the market decides to act differently than all previous times (always possible), history is an excellent guide. The problem is nobody cares to look/pay attention. Mr. Market is very informative, but few care to take note. Mr. Stein sets an informed indication of what Mr. Market should do based upon what he has done in the past (although all agree never a guarantee). When Mr. Market offers the opportunity, it is wise to take advange of such to the degree one can. In that respect, do your due diligence, research and be prepared. Buying low and holding while the securities rides the next wave is not a formula for disaster; its just that people have a penchent for making a purchase and wanting instant gratification (price skyrocketing) and becoming upset (and moving to the next sure thing) when this does not occur; and that truly is a formula for disaster.

  • Raza - Wednesday, January 9, 2008, 11:42AM ET  Report Abuse

    • Overall: 1/5

    Mr Ben, oil more than $100, dollar lost almost half of its value, gold is up $800, we are losing jobs, spendning more money on wars, housing market is down, Goverment spending money like crazy. Deficit is high and you dont see any problem.

  • Down with Hollywood - Wednesday, January 9, 2008, 9:18AM ET  Report Abuse

    • Overall: 5/5

    Ben always gets it. Ten years from now many will wish they bought during this time. The time to buy is when things look bad. Load up and enjoy the profits later when you need it.

Showing comments 6-35 of 176<< PreviousNext >>
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