Ben Stein How Not to Ruin Your Life

This country is in terrible trouble. First of all, we are major debtors to the rest of the world. We borrow a billion dollars a day just to buy oil. We have a net debt to the rest of the world of about $3 trillion dollars, which is very roughly the value of all the assets in a large, powerful state like Ohio. We'd have real trouble financing our lavish standard of living if we didn't have the rest of the world to lend us money.

Inevitably, barring some strange turn of events, this means that foreigners will want to hold less of our currency and bonds. This will lower the value of the dollar and raise the value of the currencies of other nations that export more then we do. This, in turn, will mean that oil and gasoline and other commodities will be more expensive in dollars.

This immense debt to the rest of the world might also mean that we have to pay more interest on our bonds to attract foreign lenders. This will raise interest rates and further increase the cost of living. Scared?

It Gets Worse

Now consider that we're literally bankrupt because of our future Medicare obligations. The total cost of Medicare through the balance of the century, discounted to present value, is a number so large that it exceeds the total wealth of the nation.

That is, if you liquidated every farm, factory, home, office building, oil well, port, warehouse, apartment building, and every other darned thing in this country and put the value into one huge bond, it would not be enough to pay off our future Medicare liabilities. And that's not factoring in the drug benefit.

And then there's Social Security, defense, and interest on the national debt. Not to mention the cost of living for 300 million of us.

Let's face it, this is a terrifying scenario. But it gets even worse. The Securities Industry Association (which, of course, wants us to buy securities) says that retirement saving is so inadequate that about half of us will have to substantially lower our standard of living in our golden years. About 20 percent of us will face genuine poverty in retirement.

The Silver Lining

But this is a column about living in the solution, not living in the problem. So here are a few suggestions to get us through the crisis.

First, we can't assume that the federal government will act sensibly. They haven't done so for a long time, and that's a clue to how they'll behave in the future. This bounces the issue back squarely to us. We have to take up the slack by saving more and more. Economists call this the theory of rational expectations.

Whatever we thought the government would do for us probably will not happen. We're on our own. So go to your financial advisor and make a serious plan to save until it hurts. If it doesn't hurt, you're not saving enough. (If you don't have a financial advisor, I recommend Raymond J. Lucia, who will tell you how to harmonize your liabilities and assets. And, no, he didn't pay me to say this.)

Second, give very serious thought to the stocks of emerging market nations like Thailand, Indonesia, Brazil, India, China, and even the tricky Russia. These nations are growing like gangbusters.

They have either minerals or young populations or both. They're getting major amounts of advanced capital goods. Their currencies are strong and getting stronger. Unlike the U.S., they have immense reserves of foreign currencies backing up their currencies.

Their stocks have taken a huge pounding in recent weeks. Major indices in developing nations have fallen by as much as 50 percent, and large index funds of emerging markets have fallen by 25 percent. None of this makes any sense.

The ostensible reason is that when the U.S. economy slows down to fight inflation, exports of emerging markets fall rapidly. This just doesn't reflect current realities. Our economy will continue to import vast amounts for the foreseeable future. Other nations will continue to import, and domestic demand in these nations is growing very fast. So there is no currency problem at all that I see, unless I'm missing something. The picture for the emerging markets is bright.

The Best Time to Buy

Yes, the price of major emerging markets is down (think EEM and DFEMX). In fact, it's way, way down. But this makes it a good time to buy, not a bad time. As Warren Buffett always reminds us, the time to buy a stream of earnings is when the price of those earnings is reduced.

In effect, panicky short sellers have offered us a bargain on emerging-market stocks, letting us have some very good companies for 25 percent off what they were two months ago. I say go for it. The ride will be choppy, but that's where the future is. Look into EEM and DFEMX (although there'll be a high minimum for that last one unless you buy it through an advisor).

Of course, this should be a minority of your holdings -- maybe 10 percent or 15 percent at most. I would put at least another 10 to 15 percent into developed world foreign funds like the EFA. But this offers a real possibility to play the falling dollar and the growth in emerging markets, and to offset our totally irresponsible government policies.

The Right Time to Prepare

I would also add this stray thought: Many critics dump on variable annuities, and it's true that some of them are too expensive. But imagine yourself old and ill, and too distracted to make intelligent investment decisions (as if any of us can do that even in our prime).

Wouldn't it be nice to get a sizable check every month that will never stop coming? One that doesn't depend on your mental agility? Or on market conditions? It sure appeals to me, and as long as you buy your variable annuities carefully and make sure you know what all the fees are for, it should to you, too.

Kim Jong Il's missiles may not work -- we may actually have to live until old age. But we're already on a path to financial perdition. It's up to us to save ourselves before we reach old age, and the time to start is now.