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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Bear Market Advice

by Ben Stein

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Posted on Friday, July 18, 2008, 12:00AM
Now that the three major U.S. stock indexes have hit bear market levels what shall we do? Well, let's ponder....

First of all I never thought things would get this bad, and I still think the market's reaction is overdone, to put it mildly.

The aggregate losses in the U.S. stock market since the peak last October have totaled roughly $3.5 trillion dollars. Not billion. TRILLION. That is, the speculators and traders have knocked roughly $3.5 trillion off of the value of all publicly-traded stocks in this country.

Supposedly, this is due to the losses in mortgages held by banks and other financial institutions. But those losses in total might amount to - after recoveries on foreclosure - at most $200 billion. The losses to stock market investors - you and me, kid - are roughly 18 times what have been lost on mortgages.

Why?

Some say the markets are tanking because the cost of oil is skyrocketing. Surely this is true. Or is it?

The U.S. imports roughly 12 million barrels of oil per day. If the price is up by sixty dollars a barrel that is an additional cost to the nation of roughly $720 million a day. This is a staggeringly large sum. Breathtakingly large.

In one hundred days, it amounts to $72 billion. In a year, it amounts to (very roughly) $250 billion of added costs to the nation. Again, these are staggering numbers. But this is still one fourteenth, or about just seven percent of the loss the stock market has suffered.

In sum, there is a problem of proportion here. The losses in the stock market are simply staggering compared with the real world event metrics that supposedly caused them. This suggests the likelihood that these moves in the market are temporary and will be reversed in time.

But in the meantime, what do we do?

For one thing, we get ourselves some guaranteed retirement income in the form of annuities or variable annuities. In these troubled days, we want to farm out as much of our risk as we can to the insurers who sell annuities and let them do the hedging.

Variable annuities are now available with a feature that captures much of the upward movement in stocks while providing a floor to limit possible losses. Yes, you have to pay for the hedge, but it's looking awfully sweet now. Talk to your financial advisor pronto.

Second, you might want to delay retiring if you can. You do not want to have to draw down your retirement funds now while the market is down. If you do, you will likely face a serious shortfall of retirement savings in future.

If you do have to retire, live as carefully as you can, drawing down as little as you can, until the glorious day the market recovers. Even then, consult carefully with your advisor about how much you can safely withdraw. If you have the backup of guaranteed retirement income, you are even better off.

But do not fall into despair. Bear markets last on average less than two years. The recovery is often very abrupt. This one will end, too.

If you have the money to buy, now is the time to buy the broad indexes (links associated with the top ETF for each index) - the S&P 500 (SPY), the Dow Jones Industrial Average (DIA), the MSCI Emerging Markets Index (EEM) and the MSCI EAFE Index (EFA) for developed foreign markets.

Don't denude yourself of cash, but if you can spare it, buy now and in ten years you will be glad you did. The sun will come out tomorrow. It always does. And as the saying goes, "the darkest hour is just before dawn."

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308 Comments

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  • Yahoo! Finance User - Friday, July 18, 2008, 4:32PM ET  Report Abuse

    • Overall: 1/5

    As usual, a disgrace. Why does anyone pay this guy for bad advice? Taking his advice over the past year would have lead to staggering losses. Talk about being a shill for a corrupt market where insiders are continuously dumping shares, and big government is bailing out everyone who makes bad mistakes. Yea, it's different this time, sell into any rally like the pro's, and get out while you can.

  • Out of Focus - Monday, July 21, 2008, 6:28AM ET  Report Abuse

    • Overall: 1/5

    The reason why you do not know why we are in a bear market is because you are too busy getting your market analysis from talking heads on Fox News. The reason why we are in a bear market is because stocks were overpriced to begin with. If you knew anything about P/E ratios and the like you would know that. Also, recommending a variable annuity in a bear market is retirement suicide. I used to work for a variable annuity co during the last recession (2002) and personally saw people lose tens of THOUSANDS of dollars in variable annuities. Most retirees dont have the stomach for those kinds of losses. Truth be told, if you weren't so overly optimistic last summer at the peak of the bull market, you would have been able to warn people of the impending bear market and advise them to move to fix investments while their portfolio values were are their peak. Instead you continue to keep your head in the clouds and surmise that this bear market is simply an overreaction. This market is wiser than you Mr. Stein. Any anyone who has any wisdom would have hopefully learned their lessons from you previous articles and not listen to you. I think you can sometimes have some good COMMON SENSE articles, but whenever you do market analysis you fail miserably. For the good of us all, please stick to common sense articles and leave the market analysis to the talking heads on Fox News.

  • r - Monday, July 21, 2008, 8:01AM ET  Report Abuse

    • Overall: 1/5

    They keep bounding us over the head with this advice to "delay retirement". Here is what they mean - Yes, we gave you consistently bad advice in the past but you listened to us and now all of your investments blew up and you're broke, so here is some more advice from us: work until you drop dead.

  • hunter - Monday, July 21, 2008, 8:03AM ET  Report Abuse

    • Overall: 1/5

    "In sum, there is a problem of proportion here. The losses in the stock market are simply staggering compared with the real world event metrics that supposedly caused them. This suggests the likelihood that these moves in the market are temporary and will be reversed in time.".................in time? holy cow Ben, where have you been? the housing gaff will last for years, the price of food and fuel is set to climb precipitously and you recommend annuities? it is unbelievable that Yahoo pays you to pen such gibberish. as one said before, sell into any rally........Paulson has already told you there is a lot of pain left in the banking sector.........this is far from over, especially until we see rates go up and the dollar gain some respect, which will simultaneously crush a housing recovery.........we're screwed Ben, irrational exuberance like you subscribe to is over!.

  • CareyA - Monday, July 21, 2008, 8:11AM ET  Report Abuse

    • Overall: 1/5

    I don't get it. Why is Yahoo paying for this anti-scientist when he is probably paid rather handsomely by the insurance industry for his relentless plugging of annuities? Yahoo should be paid to run this column, as it's nothing more than advertising.

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