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The United States must be approaching the end of the recession when economists begin offering their retrospectives. Even if the data are pointing to an end to the recession, in technical terms, the economy is a long way from recovery. Just look around at the people out of work. Even those who have maintained their jobs are finding it difficult to qualify for mortgages, keeping the real estate industry itching for more handouts like the extension to the home buyers’ tax credit.

And some economists are not convinced that the worst is over. We may be in the lull of a double-dip recession. Wherever the economy is, making predictions, like critiquing wine, is often no more accurate than randomness.

For Fortune Magazine, economist and actor Ben Stein contributed four of the lessons he learned during the recession.

  • Economic forecasting is still an extremely difficult gambit
  • Financial market forecasting is even more troublesome
  • The amount of lying and deception by the financial sector of this country has been breathtaking
  • The government has no special abilities to forecast or predict a darned thing

Ben Stein is usually a strong supporter of the financial industry, so it’s nice to see him pointing out some of the flaws inherent in the system. He goes on to reassure investors that staying invested in stocks and bonds while keeping enough liquidity is the best way to weather recessions in the long term. If the second dip rears its head, I would like to believe it will provide more opportunities for investing for growth over the coming decades.

Are you prepared for the next recession?

Photo credit: simonhn
4 lessons from the recession, Ben Stein, Fortune, November 19, 2009

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Should you get a variable annuity when you retire? The company I work for hopes you will, but many financial advisers, gurus, and authors steer people away. The reason is simple — the benefits in the form of gains don’t outweigh the fees and diligent investors can manage their retirement money in the form of index mutual funds, at least with a long-term time horizon.

Ben Stein holds a differing opinion. He is a fan of variable annuities in moderation. He admits that only a portion of a portfolio should be invested in annuities in order to ensure a modicum of guaranteed income. Here are his reasons:

* Variable annuities allowed his parents, both economists but not great investors, to retire comfortably.
* Some annuities will “lock in” your stock market gains to guarantee you won’t lose your money. Of course, the stronger the guarantee, the higher the fee.
* Old people get Alzheimer’s. Even skillful investors can lose their ability to control their portfolios and can benefit from a regular check.

Ben admits that individuals who are successful at investing and continue to be through retirement can manage to perform better investing on their own. He is thoroughly convinced that most people should consider putting at least a portion of their savings into annuity products when they retire.

I’ve generally been strongly against variable annuity products, especially after hearing story after story of elderly people being encouraged to enroll their life savings into products from which they would be unlikely to receive a benefit worth the fees. I do see Ben Stein’s perspective and perhaps annuities would be worthwhile for some individuals in varying degrees.

Why Ben Stein Loves Annuities [Money Magazine video]

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Ben Stein: 3 Biggest Retirement Mistakes

by Flexo on November 29, 2007. Filed under Investing.

Ben Stein has been making the rounds through the media in support of National Retirement Planning Week, a celebration of preparedness. He recently met with Terri Cullen from the Wall Street Journal and sat down for a quick interview.

Ben shared his opinion regarding the three biggest mistakes people often make in regards to the topic of the day.

Ben SteinMistake #1: Not Starting Early Enough. Ben says the government should require auto-enrollment in 401(k) or 403(b) retirement plans, with an optional opt-out clause. He also suggests that teens with part-time jobs while going to school should have the self-discipline to save a small portion of their earnings ($10, $20, or $25 a week or month) into a retirement plan such as an IRA. The small savings will not dent today’s enjoyment of life, but the magic of compounding will do wonders for your quality of life by the time you’re 65. Start saving later, and it’s much more difficult to catch up.

Mistake #2. Not Being Diversified. Ben Stein’s advice is to diversify your investments among a number of different spectra: company size (large cap vs. small cap), company objective (value vs. growth), location (domestic vs. international), and level of market development (emerging markets vs. developed). I haven’t focused too deeply on some of these dimensions. He’s not a fan of target date funds because of the inclusion of bonds. He feels bonds are basically useless investments, especially if money markets are providing similar returns without the risk. Ben’s worried about terrorism or hyper-inflation, which would mean bad news for bonds.

Mistake #3. Not Curbing Your Spending. Lao Tsu said, “There is no catastrophe worse than lavish desires.” Ben admits this is his main mistake — it required constant effort to keep up with his lavish lifestyle. He has eight houses. Even he admits that is too much for one person. Is excessive spending overlooked as a threat to solid retirement? When it comes to spending in the present time, it comes down to a matter of personal choice. As long as one is educated so he understands that spending $x now will mean he will have $x · 1.08n where n is the number of years until retirement (assuming an 8% annual growth rate), he should be allowed to make that decision and not criticized. However, if expenses are accelerating at a higher rate then income, there will be danger ahead.

View Terri Cullen’s interview with Ben Stein here, after sitting through a commercial.

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Ben Stein’s Tips for New College Students

by Flexo on September 5, 2007. Filed under Education, Tips.

College classes have already begun around the country, and it’s not too late to start listening to Ben Stein. He has some great advice for those matriculating. His son is just starting college, so I would imagine Ben has been giving this topic a lot of thought lately.

Make friends with your teachers. While seeing your teachers socially was unacceptable in high school, as adults, the teacher-student relationship takes another form. I had no problem with attending barbecues hosted by my professors, going out for meals, or just relating on a more personal level. We discussed sports and books, music and logic.

Ben goes on to address ways to become friends, but they all pertain to situations in class. While I was in college, a lot of the real relating took place outside of the classroom, but that may be more a result of the type of degree I was pursuing.

Do your assignments neatly, correctly, and timely. Ben Stein mentions that college is about learning to budget your time. Looking back, I wish I had done this better. My time commitments pushed me in a number of different directions and I was always finding it difficult to fir everything I wanted to do inside of the day. I still have this problem now.

I find it hard to believe that people have to be reminded to spell correctly. I’ve encountered horrible spelling from my classmates as a graduate student, and I just don’t understand what the excuse is. Grammar is one thing; there are times when the correct grammatical rules to apply are confusing. Poor spelling is inexcusable. I am sure I’ve made spelling errors in the past, but I would be embarrassed if I spelled as poorly as some of my classmates.

Be well-rounded. I applaud Ben for writing this. Many times, people are encouraged to pick one topic and become an expert without much thought to the larger world around them. Ben Stein wants people to study history, geography, Shakespeare, poetry, literature, biology, physics, and mathematics. Of course, I would add visual and performing arts to his list. All of this teaches more about human understanding than would any business psychology or human resources class.

You probably won’t call upon these subjects in your daily life when you enter the workforce, but they’re vitally important in teaching you how to think. And learning how to think is, above all, the main challenge you face in school. It’s true that you have to know certain basic facts, but you should also know how to approach a problem, break it down, solve it, and write about it. That’s why it’s important to take English composition, and take it seriously.

Join a fraternity or a sorority. Social groups can be positive or negative, so be choosy about which groups you hang out with. My fraternity, which was new on campus when I joined as a freshman, was more of an honor society or service group during the first few years. We didn’t have a house so there are no movies that quite exemplify our dynamic, but we became decent friends as we did as much as we could to follow the fraternity’s national “purpose.”

As Ben notes, the good thing about a group of friends is the support they can provide when it is most needed. Chances are there will be some time during your time in college when you need that support.

Neatness counts. Image is always important.

If you wear sloppy clothes, be clean inside them and have your thoughts especially well-ordered to offset your appearance. You’ll need to work twice as hard so your teachers know you’re smarter on the inside than on the outside.

Don’t smoke or drink to excess. Anything in excess is bad. Aim for moderation and limit any unhealthful habits.

Play a sport. Is marching band a sport? I guess it depends on the marching band.

Have a roommate you like. Personally, I preferred having no roommate and spending most of my time in the dorms with my girlfriend. I never had to worry about disturbing anyone. I did live in a special interest dorm, where everyone on the floor was interested in the same thing. For my floor, that was music. In return for living in the nicest dorms on campus, for which we had to apply separately from the standard housing application, we had service responsibilities to the community. I enjoyed this type of environment.

Try to have a significant other. I am a strong supporter of this idea, but I would suggest not staying with the same significant other for your entire college experience unless you are sure you are going to get married. College is a great time to learn about yourself and determine you compatibilities.

Develop good work habits.

College is where you learn to allocate your time, get your assignments done, and develop a good rapport with your fellow workers (students) and your bosses (teachers), and make them all your friends.

Ben notes that in all likelihood, you’ll spend the rest of your life working. This is the reality, so it is best to make the most of it. I didn’t work as hard as I should have while I was running around leading various organizations. I put my priorities elsewhere when I should have worked for more balance between classwork, practicing (I majored in music education), activities, and socialization.

As a leader among my peers in high school in college, this hasn’t translated as well to the working world as I would like. While I’m happy with my experiences, and changing anything about my personal history would change my identity, there was possibly a little room for improvement when it came to getting the right things done at the right time.

Chances are you won’t get everything exactly right. Ben Stein’s tips will get you started in the right direction.

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Ben Stein: Invest or Pay Off Mortgage?

by Flexo on June 18, 2007. Filed under Investing.

This is an age-old question. Does it make more financial sense to pay off your mortgage quicker by increasing or adding payments, or to use that extra money and invest in an index fund in the stock market. The simple answer is to choose the option that leaves you with the most monery down the road, and with low mortgage rates, the better choice is investing for the long term.

But that’s a simple answer to a complex question. There is a psychological aspect of money that differs for each person. Money isn’t all about math for most individuals. Some are good at separating emotion from money and treating their finances as a business with little emotional attachment, but that’s not common in my experience. For some people, eliminating debt is preferred over maximizing money. For one, less or no debt can reduce stress, which improves your health.

Nevertheless, Ben Stein agrees with my opinion on the matter:

Generally speaking, if you have a very low mortgage rate, it is better to invest the money than to pay off your mortgage. It’s an interesting fact — the rate of return on your mortgage is the interest you’re paying on it. If you have a 6 percent mortgage and you’re paying it off, you’re earning 6 percent. If you can earn more than 6 percent in the stock market, you should probably put it in the stock market. But, on the other hand, pay it off in an expeditious way. It’s good to have it paid off, or at least mostly paid off, by retirement time.

This simplified answer doesn’t take into account the emotional side of money. Perhaps it shouldn’t, because facts are facts (unless they’re statistics). But it also doesn’t mention tax benefits of a mortgage for those who itemize their deductions and it doesn’t take into account variations in stock market returns depending on your chosen investments and on market cycles.

His last point is the important one, I think. Once you retire and income presumably drops, you don’t want to have that much of a mortgage payment preventing you from using your money for other living or enjoyment expenses.

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Ben Stein: Your Suggested Portfolio

by Flexo on June 16, 2007. Filed under Investing.

Ben Stein is one of my favorite financial writers. I don’t always agree with his political views, but I usually find him to be grounded in reality in money matters. Also, he’s a pretty funny guy when he wants to be.

Here is what he suggests for a typical working American’s portfolio distribution, from a recent article in Forbes magazine:

* 20% of your total portfolio in cash or CDs to take care of emergencies, like the loss of a job.
* 80% in a mix of index funds and exchange-traded funds.

That 80% should be invested as follows:

* 25% in an S&P 500 index fund like Vanguard’s VFINX.
* 25% in a total stock market index fund like Vanguard’s VTSMX.
* 25% in the iShares ETF EFA, an international large cap fund.
* 15% in the iShares ETF EEM, which tracks an emerging markets index.
* 5% in the iShares ETF ICF, a fund that tracks real estate investment trusts.
* 5% in the the ETF XLE, which follows the energy sector.

Ben Stein doesn’t take any time horizon into account when recommending this allocation, but he does voice his opinion against bonds. What do you think of his portfolio suggestion? Does the allocation of the 80% equity portion provide better risk-adjusted return than just investing straight into VTSMX? Ben Stein is a proponent of timing the market through the use of sector ETFs, which I know from reading his book, Yes, You Can Time the Market. Some say you shouldn’t try to time the market it all, it just introduces unnecessary risk.

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Before we get started with the details in US News & World Report’s Investing Guide, Ben Stein (actor, speech writer, guru) has some strategies to share with those wondering what to do with their money this year. Here are his thoughts.

Dollar? Dollar? Dollar? The decline of the USD will continue as the United States exports more than the country imports, and there’s no sign of that changing.

The currencies of many emerging-market countries like Taiwan, Korea, and Thailand are also strengthening against the dollar (with the appearance of some immense hiccups in Thailand) as their economies run trade surpluses with the United States… This seems like a sure thing, and in the long run it is. There will be pullbacks and losses along the way, but the long-term picture seems clear: Dollar down, Euros and emerging market currencies up.

Action based on Ben Stein’s advice: Invest in emerging market index mutual funds, specializing in Europe, Australasia, and the Far East.

The price of stocks as measured by the trailing price earnings ratio on the Dow is now above 20. This is very high by historical standards, and sometimes predicts a correction.

I wouldn’t let that stop me from buying. As high as the market is, barring some awful act of terrorism, a natural disaster, or a catastrophic failure of monetary policy, in 20 years it will be much, much higher. You’ll be sorry if you didn’t buy in 2007 — and keep on buying. If the market falls, just keep on buying. When the prices fall is when you get the real bargains.

Here are some more general Ben Stein links for fans:
* Ben Stein remembers President Ford
* Ben Stein rails against options backdating in the New York Times (free registration required).
* Ben asks us to pray for peace.

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Why Can Ben Stein Retire at 61?

by Flexo on September 5, 2006. Filed under Investing.

I like Ben Stein. He’s been an actor, game show host, advisor to a presidential administration, author, and traveling guru. In his latest column on Yahoo Finance, he writes about the tendency to live in fear about retirement but not adequately plan (save). He started getting to the point by offering how he would be comfortable if he found it necessary to retire soon:

* His parents were thrifty planners.
* His parents bought low-cost variable annuities and bequeathed them to him.
* He saved money, learned the basics and more of investing, worked with great financial planners, and had a career that paid well.

He has more specific tips to offer, so that you, too, can retire comfortably:

* See a good financial planner.
* Understand your plan.
* Diversify. (Stein’s Yahoo column can kick Kiyosaki’s Yahoo column’s ass.)
* Invest 15% of your wages every month into your diversified investments (not just savings), and continue in down markets.
* Unless you have $1 million in annual income, be thrifty.
* Consider your future.

His last tip may be a little controversial with those who like to cut out all possible expenses:

Carefully consider variable annuities in addition to your investment portfolio, but only when you understand them and know what each fee is for. In your really advanced years, when you no longer have the strength to keep track of things, that automatic check will be a lifesaver.

The nature of the Internet creates an environment in which the biggest voices do not include people in their “really advanced years.” Ben’s point here is one I hadn’t considered: eventually, one may be simply too tired or too concerned with health issues to worry about finances as well as surviving.

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