smart spending

Q&A with media mogul Steve Forbes

QuestionMany students are graduating college with huge debts and salaries that won't match. Is there a bubble or oversupply in the college education market?

AnswerIt's not so much an oversupply in the number of people who have a college education. There is always a need for people who have a real education.

The real bubble is in tuitions, which have been going up at twice the rate of health care and four times the rate of the general price level for years.

Parents are asking, "What are we getting in return for all this money we lay out, all this debt we take on?" And the answer is less and less. So I think you're going to see a real revolution -- it's an overused word -- but I think it's going to apply in higher education in the next 10 or 15 years.

Where, instead of taking four years to get your undergraduate degree, you're going to do it in three. Take maybe five or six weeks off in the summer and go through. That would cut costs enormously. If you want an advanced degree, you do it in four years instead of five or six.

It's imminently doable. And perversely the government's policies help create higher tuitions by providing aid to students and the like. What happens when the students get the extra money, the university just jacks up the tuition fee. You're on a treadmill and the treadmill is winning.

I think you will see more and more a real focus on, "OK, college or university, what are you supplying and is it worth the investment and sacrifice we make to provide those resources to you?"

QuestionOn a more personal note, what kind of alternate investments -- those besides stocks, bonds and real estate -- do you own, if any?

AnswerNo surprise, I have life insurance policies. And I think basic things like that.

The key thing on investing, you don't have to have massive, convoluted new financial instruments and all sorts of pretzel-like commodities. All you need to do is set aside a certain amount each month. Even if you start with very few dollars, compound interest does work.

If you have that discipline of just buying a certain amount, and initially just go with index funds with low fees if you don't have time to do picking for yourself. And you'll do very nicely.

The key thing is consistency. The big mistake people make is they let emotions take them over on the upside. 'Golly, I talked to someone at the bar last night who said he tripled his money. That guy doesn't have many brains -- I could do better than that.'

You go doing silly things.

And at the downturn people say, "I can't take the risk, I can't sleep at night, I have to pull out," and they miss the upturn. Many of them, millions of investors, did not get the full benefit of the stock market turn in March of 2009 because the outlook was so bleak. But the market has doubled since then and a lot of people missed most of that.

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