Monday, December 21, 2009, 4:42PM ET - U.S. Markets Closed.

Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Don't Panic - Buy Index Funds and Real Estate

by Ben Stein

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story
Very Good (1193 Ratings)
3.1433362/5
Posted on Thursday, July 3, 2008, 12:00AM
Now for some reassuring words. Of all of the columnists writing in this space, I suspect I am the oldest. This means I have seen the most economic fluctuations. This also means I am less terrified about them than younger heads.

Let me put this differently. I read recently in The Wall Street Journal that the stock market was at the time of that writing almost in " Bear Market Territory," which is to say, down roughly 20% or more from its high. This, said the author of the piece, shows that we are about to have very bad economic times. The author helpfully noted that the market has been down into "Bear Market Territory " some nine times since the mid-1960's. Without doubt, this author was trying to do his best, and to serve his readers.

But here's a relevant addendum: yes, the market may have fallen 20% or more nine times since then. But there have only been five recessions since then.
That is to say, the stock market predicts 10 out of five recessions. Not such a great record.

The truth is that while the economy is clearly slowing down we are not yet in a recession. There has so far not even been one quarter of negative economic growth, nor even a break-even quarter. We may well have one soon, but two in a row are required for the classic definition of a recession. And as I keep saying, if anyone can call anything a recession, the whole subject loses all intellectual or factual meaning. This too could happen-a real recession-but it has not happened yet.

There are still reasons for hope. Exports are phenomenally strong. Minerals and agriculture are strong. Medical is strong. The government sector is large and robust. Sadly, military must remain strong indefinitely.

The government is running an immense deficit, and this is stimulative. True, finance is in tatters, as is transportation, refining, and home building. These are large sectors. They may fall so much that they bring the economy into recession.

But think about this: somewhere out in the big wide world, there is voracious demand for minerals and commodities. That (along with speculation) explains their major price increases. It would be extremely rare for there to be a spectacular worldwide demand for commodities along with a serious fall in demand for other factors in an economy. That is, it would be rare for demand to be both rising and falling at the same time. It could happen, but it would be rare.

However, let's assume we do have a recession. I hope we don't, but we might. What do we do about it? What can we do about it? Just keep plugging along. Just keep buying broad indexes. Just keep a good chunk of liquid assets. None of us can control the economy. Thus, we just have to keep swimming in the roiled waters.

As we cling to our life jackets, please remember this: no recession lasts forever. I can well recall so many times in the past when every single headline in The Wall Street Journal was about some record growth of sales or profits. Then time passes and every single headline is about horrible news. Then time passes and there is mixed news, and then it's all good news again.

Economies go through cycles. But the long-term trend is up, and people who buy broad indexes when the news is bad, if they live long enough, live to be happy about it.
Besides, what alternative do you have? If you have money to invest, yes, keep some in cash. But cash loses its value in inflationary times. In fact, holding cash over long periods - beyond what you need for peace of mind - is a surefire way to make yourself unhappy. You will lose money on it over long periods as inflation nibbles at it.

The best bet usually is what has gone down the most, and that, for now, is real estate. I got a letter from a thoughtful reader saying he was going to wait until real estate had reached its all time low before he bought. But how will he know? And how rarely does he find a home he truly loves? Even when homebuyers buy at the top of the cycle, if they love their homes, and if they can hold on, they always end up delighted.

Yes, there will be news saying housing will not recover THIS TIME. But in fact, except in really depressed areas, housing recovers EVERY TIME and goes on to pass its prior record. The real story of real estate, as my brilliant money manager friend, Phil DeMuth, says, is of failing to buy, not of staying away successfully.

The plain fact is that you don't know when real estate will be at bottom until it's too late. If you see a home you love, buy it now if you plan to be in it a long time. And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do.

Email this Page IM this StoryBookmark this StoryAdd to your Del.icio.us accountDigg this StoryPrint this Story

Rate This story

Very Good (1193 Ratings)
3/5
Sign-in to rate!

379 Comments

Showing comments 6-35 of 379<< PreviousNext >>
Sort: first to last

  • Yahoo! Finance User - Tuesday, August 19, 2008, 2:55PM ET  Report Abuse

    • Overall: 1/5

    " There is no such thing as intrinsic value in a house. A huge percentage of the public has now put its net worth into something that arguably isn't an investment...A house is much more of a consumer product then an investment." -Kuntsler The Long Emergency

  • Yahoo! Finance User - Wednesday, July 30, 2008, 12:25PM ET  Report Abuse

    • Overall: 5/5

    Well said Ben.

  • Yahoo! Finance User - Monday, July 28, 2008, 9:37PM ET  Report Abuse

    • Overall: 5/5

    Come on folks, let's keep our historical perspective! This is neither the best of times nor the worst. If you're fortunate enough to have one of the greatest generation still around to ask how they overcame adversity, survived a decade long depression, and won a world war, please take the time to do so. Capitalism is not perfect, government intervention not always perfect nor well timed, and this great nation of ours is made up of imperfect, often short sighted individuals as well as great thinkers and creators. But when all the negatives are stacked up against the awesome accomplishments and attributes of nation, I will place my bet (and my families wealth) on this economy and its ability to generate wealth. No cycle is forever, negative headlines soon become yesterdays news, and when the economy moves back into positive territory, everyone who bet against that happening will be lamenting lost opportunities. Right on, Ben! Please keep telling it like it is! (and hey people, can we keep this forum civil and focused on comments and not personality? Graciousness and intelligent, inciteful disagreement should be the norm and not the exception)

  • Yahoo! Finance User - Wednesday, July 23, 2008, 12:15AM ET  Report Abuse

    • Overall: 1/5

    I would not buy a house right now. What if things fall of the cliff and no one wants to offer 30 year mortgages? It could happen. Then what? You think it is bad now.

  • Yahoo! Finance User - Tuesday, July 22, 2008, 3:20PM ET  Report Abuse

    • Overall: 1/5

    Ben, you are a wealthy man who lives in Los Angeles and has no idea what he's talking about. We get it; you're famous and we should listen to you! Right. I'm a little confused as to how your tune changed since you were telling people to stay away from real estate in 2005. Remember? You cited your Malibu house and how it had lost some 60% of its value in a few short years? Ben, this housing downturn is unlike anything this country has ever experienced and you know it. When Fannie and Freddy collapse and the government is too broke to bail them out (without causing even more severe inflation, what are we at 14% per year now?), who will buy this real estate? Over the course of 100 years you can expect real estate to yield a return of less than one percent per year. Stop acting like the housing bubble won't be among the most significant economic events of this century. If you buy a home now, expect to be stuck in it for 15 years. Buy your dream home, nothing less. Prices are only going down from here on out...until 2010 at least. Ben knows this but Yahoo! is going Fox News on us.

  • Yahoo! Finance User - Wednesday, July 16, 2008, 12:04AM ET  Report Abuse

    • Overall: 4/5

    I agree with Ben. Great post./ For the people who like to bash because they are loosing there money now and whinning about it. Sell-Sell-Sell. I will buy it. I work in Mexico and believe me we do not have it bad. Its aditudes like yours is one of the reasons the market is falling. When it starts gaining again you'll be here crying and complaining because you sold.

  • Yahoo! Finance User - Tuesday, July 15, 2008, 4:12PM ET  Report Abuse

    • Overall: 5/5

    Very well said. This is probably one of the more polarizing articles I have seen, with mostly 1's and 5's ratings, which averages out to 3's. What's disappointing is that some of the commenters' remarks were downright insulting. Can we carry out intelligent conversations like adults? Whether Ben is right and whether you agree with his general direction depends on one thing: Do you believe in America? While U.S. asset price has experienced long term appreciation in the past century, the rise was also coupled with the U.S. rise in prominence, especially after World War II. When you buy a broad base index fund such as one that tracks the S&P 500, you are in effect betting on the U.S. economy. Of course, given the globalized nature of economy and the substantial exposure that some S&P 500 companies have in the global market, the performance of S&P 500 is tied not only to U.S., but to a large extent, the global economy as well. However, since the asset is dollar based, and U.S. still represents the #1 market for most of S&P 500 companies, and that the U.S. is still a major force in driving the global economy, the U.S. affect still dominates. In the long run, broad base index fund with significant exposure to the U.S. economy will do well as long as the U.S. does well. Do you believe that we have seen the best days of this country, and there is nothing but significant downside from this point on? No one can give a 100% answer for this. The Roman Expire is long gone. Japan is not as mighty as it used to be in the 90's. But then again, BRIC (Brazil, Russia, India, China) is not a sure bet either. If you believe that the U.S. is in long term decline, then you also have to believe that there is nothing we can do to turn the ship around. In that case, do you even want to stay with this country? Personally, I believe in America, and I will invest accordingly. I came from another country, and I still see a lot of good things about this country, and a lot of great things that we are capable of. Some advantages that this country enjoys: - system of law - our legal system is not perfect, but it is still way better than most countries; having a reliable legal system is fundamental to having a competitive economy - political stability - if you think things are bad in Washington, you ain't see nothing yet; as an example, even when we have a terrible president, the worst that can happen is to have to wait until his/her term expires. In some other countries, you have to launch a revolution, a civil war and die to make change. - our risk taking culture - people in the U.S. are much more willing to take risk compared to people in many other nations; it took people who are willing to take risk to create the companies that has propelled our economy to prominence - immigration - our own people do not have a monopoly to give birth to the best talent, but we can "import" them, and having a good legal system and political stability are key to attracting good people Things are bad right now, and it could get worst. I just believe we can change for the better. Do you?

  • Yahoo! Finance User - Tuesday, July 15, 2008, 1:38PM ET  Report Abuse

    • Overall: 1/5

    Keep on writing, Ben. One of these days things will turn around and you'll be able to say "I told you so".

  • Yahoo! Finance User - Tuesday, July 15, 2008, 4:55AM ET  Report Abuse

    • Overall: 1/5

    If you already don't know the information he is giving, which is pretty basic, then you shouldn't be investing without help. Terrible advice for the people most likely to believe him. Ben should be ashamed of himself for selling out the people who could use real advice in order to promote the Ben Stein brand of idiocy.

  • Yahoo! Finance User - Monday, July 14, 2008, 5:47PM ET  Report Abuse

    • Overall: 2/5

    I am in total agreement with Ben. The Media try to whip up everything out of proportion. IMB likely would still be in business if not for the media causing a run on the bank. Now buy a house now? I already have a house that I just love that I bought in 1986 and it is up 400 percent in value even with the real estate drop. AFAIAK, houses have about 50 percent more to drop before I will consider them a good buy. Also why would I want to own more than one house. With hi prop taxes and upkeep, they are just money losers. Vito

  • Yahoo! Finance User - Monday, July 14, 2008, 5:21PM ET  Report Abuse

    • Overall: 4/5

    I find it entertaining all the fools stating over and over again the comparison of current levels to April 1999. Great! So BUY! If you had bought then, how great would you have felt a year or two ago! CYCLES PEOPLE!! How difficult a concept is it to grasp?! Seems to me, if I can buy something now, for 1999's prices, it should, in fact, be an excellent deal! I may seem to be parroting what Ben stated, but, is it really that hard to ascertain? Aw, who cares. The less you buy, the sweeter the deals get for me...

  • Yahoo! Finance User - Monday, July 14, 2008, 5:11PM ET  Report Abuse

    • Overall: 1/5

    WHY?? front side this bear market decline?? wait for a trend change before jumping into this!

  • Yahoo! Finance User - Monday, July 14, 2008, 5:02PM ET  Report Abuse

    • Overall: 1/5

    One of the worst writers/analysts of all times. It's because of people like Ben that we are in a mess that we are in today.

  • Yahoo! Finance User - Monday, July 14, 2008, 4:54PM ET  Report Abuse

    • Overall: 1/5

    He went so far that I am seriously considering the possiblity that I have met a cheater other than an idiot...

  • Yahoo! Finance User - Monday, July 14, 2008, 3:56PM ET  Report Abuse

    • Overall: 1/5

    What a surprise - Ben is still in denial. Hey Ben, tell me - what is the GDP deflator the government is using to determine economic "growth" these last couple of quarters? Now tell me, if the method to calculate the CPI was consistent with pre-Clinton eras, would we be in a recession? You are basically saying we aren't in a recession because the government has changed the definition of a recession. God gave you brain. Please learn to use it.

  • Yahoo! Finance User - Monday, July 14, 2008, 3:45PM ET  Report Abuse

    • Overall: 5/5

    Buy Low, sell high. Its quite easy. Buy now for the long haul and 20 years from now you will be happy you did.

  • Yahoo! Finance User - Monday, July 14, 2008, 3:29PM ET  Report Abuse

    • Overall: 1/5

    When will an average American understand that nominal valuation of the Dow / S&P indexes today are about what they were in April 1999 .. meaning they have had no returns for their money in near 9 years. Rather, they have lost money if adjusted even for the government released and hedonically adjusted inflation numbers. When will they understand the concept of opportunity costs ? When will they understand that the stock indices have lost a massive 70% in terms of gold in these 9 years ? When will they understand that in terms of foreign currencies, these same indices have been losing propositions ? The plain fact is that the sheeple will not understand any of it if they continue to read such articles from people who are no better than pick-pockets.

  • Yahoo! Finance User - Monday, July 14, 2008, 3:21PM ET  Report Abuse

    • Overall: 5/5

    Excellent fundamental truths on all fronts. If the course you started on was correct, and often it's not, stay the course. If it needs adjustment, see your professionals.

  • Yahoo! Finance User - Monday, July 14, 2008, 3:05PM ET  Report Abuse

    • Overall: 1/5

    Its such articles from the 'experts' and 'experienced' that hurt main street most. When the big money is unloading stocks, the commoners are given 'common sense' advise to hold on to the bag. The reality is that Stocks and Real Estate have peaked in their respective economic cycles. Unless main street spends time researching to understand the investment climate, they will always be taken for a ride. Folks just need to lookup the past columns of 'expert' advise to smeel the coffee.

  • Yahoo! Finance User - Monday, July 14, 2008, 3:00PM ET  Report Abuse

    • Overall: 5/5

    For everyone that denies your predictions of the stock market rising and real estate values increasing over time - do yourself a favor and keep this article. Then publish it 20 years from now with their comments and their names attached to the bottom. Then, you can have your laugh.

  • Yahoo! Finance User - Monday, July 14, 2008, 1:27PM ET  Report Abuse

    • Overall: 1/5

    80% stocks 20% bonds my @ss thieves

  • Yahoo! Finance User - Monday, July 14, 2008, 1:22PM ET  Report Abuse

    • Overall: 3/5

    Yahoo continues to clutter the blogosphere with "expert" babble. I need to find something with an iota of value (either fiscal or at least entertainment) to spend some time at during my lunch hr, and this ain't it. Ciao.

  • Yahoo! Finance User - Monday, July 14, 2008, 1:18PM ET  Report Abuse

    • Overall: 5/5

    Lot of Common sense , maturity and wisdom has gone into this write up. Every American should read and try to understand what its all about

  • Yahoo! Finance User - Monday, July 14, 2008, 1:03PM ET  Report Abuse

    • Overall: 4/5

    Mr. Hysterical laughter apparently has his own agenda, keep up the good work Ben.

  • Yahoo! Finance User - Monday, July 14, 2008, 12:24PM ET  Report Abuse

    • Overall: 5/5

    We need more positive thinkers like Ben. We are not a "nation of whiners" and never will be. It's still true that WHEN THE GOING GETS TOUGH THE TOUGH GET GOING!

  • Yahoo! Finance User - Monday, July 14, 2008, 12:19PM ET  Report Abuse

    • Overall: 1/5

    When people began treating Single Family Residential houses solely as a share of stock to flip for financial gain, the overvalue of property now is NOT a sure thing to ever recover. STAY FAR AWAY

  • Yahoo! Finance User - Monday, July 14, 2008, 12:16PM ET  Report Abuse

    • Overall: 1/5

    Hahahahahaha!!! OMG, I'm laughing so hard I'm crying!!! (Quote): "No alternative" (Unquote) --- Really? How about TRANSFERRING your green toilet paper INTO the form of gold and silver, and then just sit back and RELAX? Better yet, ignore the "Tin Foil Hat Conspiracy Lunatics" like myself, and follow Ben "The Shill" Stein all the way down to ***ZERO***. Do you remember the old saying "I should have bought IBM at $1 dollar?" (I remember my father frequently bemoaning the opportunity he passed up with IBM). Anyway, I positively guarantee YOU will wish you bought SILVER below $20 per ounce. The silver to gold ratio is currently 52 to 1, and it is headed back to it's HISTORIC AVERAGE of 20 to 1. The ratio as is found in nature (i.e. "in the ground") is 15 to 1. WHAT DOES THAT TELL YOU??? Gold is (nearly) $1000 per ounce. At 20 to 1, where does that place the CURRENT price of silver? Yep, $50 bucks, and that is BEFORE it appreciates along with gold on the ride up as the green toilet paper continues to be debased and is summarily devalued. You people are missing the biggest opportunity SINCE IBM!!! But don't listen to a "nobody" like me (who studies economics 4 hours per day for the last 30 years), better you listen to Ben "The Shill" Stein. What is the worst case scenario if I and others are wrong about silver? YOU GET 100% OF YOUR MONEY BACK, because silver will *never* again be below $20 per ounce after the next couple of years. So ALL you are *really* "risking" is the measly 2% interest the bank is paying you, which you are LOSING TO INFLATION ANYWAY!!! Silver, at CURRENT prices, is a ZERO RISK hedge against both inflation AND a devaluing currency! It really is VERY simple. There are "laws" which "finance" must follow, equally as does matter with regard to the laws of physics. In other words... Folks, this isn't "Rocket Science!" Hey, as anyone heard from Abby Joseph Cohen lately? I'd like to know if she's interested in buying some of those dotcom shares that she insisted were as much of a "buy" as Ben "The Shill" Stein thinks Real Estate and Index Mutual Funds currently are. I know people (some of them now "suicide" widows) who are still holding THAT form of toilet paper. Forget about me, just do what Ben "The Shill" Stein says you should do. Then, in the coming years ahead you can sell those Index Fund shares, and your Real Estate, to the other retiring Baby Boomers. Sounds like a rock solid plan to me!

  • Yahoo! Finance User - Monday, July 14, 2008, 12:10PM ET  Report Abuse

    • Overall: 1/5

    The older generation needs someone to buy all their overpriced stock and real estate. Please help them. Thank you.

  • Yahoo! Finance User - Monday, July 14, 2008, 12:02PM ET  Report Abuse

    • Overall: 1/5

    Terrible.

  • Yahoo! Finance User - Monday, July 14, 2008, 11:57AM ET  Report Abuse

    • Overall: 2/5

    love ben, but where's the beef ?

Showing comments 6-35 of 379<< PreviousNext >>
The columns, articles, message board posts and any other features provided on Yahoo! Finance are provided for personal finance and investment information and are not to be construed as investment advice. Under no circumstances does the information in this content represent a recommendation to buy, sell or hold any security. The views and opinions expressed in an article or column are the author's own and not necessarily those of Yahoo! and there is no implied endorsement by Yahoo! of any advice or trading strategy.

More From Ben Stein

The Baby-Boom Retirement Crisis And How to Beat It

Let Ben Stein show you how! Stein outlines the steps you can take today to assure your future tomorrow.

Don't leave middle age without it!
Only $16.77 plus S&H

More from Yahoo! Sources

  • CNN Money
  • Consumer Reports
  • Kiplinger
  • The Motley Fool
  • Business Week
  • Wall Street Journal

Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data and daily updates provided by Morningstar, Inc. Fundamental company data provided by Capital IQ. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.

Yahoo! Answers is provided for informational purposes only, and no Q&A is intended for trading or investing purposes. Yahoo! shall not be responsible or liable for the accuracy, usefulness or availability of any Q&A information, and shall not be responsible or liable for any trading or investment decisions based on such information. View Complete Answers Disclaimer.