Most of us remember Ben Stein from the hit 1986 John Hughes comedy, “Ferris Bueller’s Day Off,” where he gave that inimitable performance as the ever-droning high school teacher who labored to explain intellectually challenging economic concepts such as “voodoo economics” to a group of thoroughly disinterested teens.
Hometown: Washington, D.C.
Education: Graduated Columbia University, 1966, with a B.A. and honors in economics; Yale Law School, 1970.
- Active in civil rights
- Economist with the Department of Commerce
- Serves on the board of the University of Pennsylvania Population Aging Research Center.
- Speechwriter at the White House for Presidents Richard Nixon and Gerald Ford
- Taught at American University in Washington, D.C., the University of California at Santa Cruz and at Pepperdine Law School
- Screenwriter, TV writer, syndicated columnist, author of 23 books, the latest of which is “The Real Stars”
- Appeared in some 30 movies and TV series, but best remembered for his role in 1980s comedy hit “Ferris Bueller’s Day Off”
- Honorary chairperson of the National Retirement Planning Coalition
- Lives in Beverly Hills, Calif., with wife Alexandra and son Thomas
Not unlike in the popular film, the affable economist, lawyer, former White House speechwriter, Hollywood personality and author is reprising his role as educator; but this time the subject is much more serious and the information he has to convey could be life altering, depending on whether or not his “students” actually pay attention.
As honorary chairperson of the National Retirement Planning Coalition, Stein is the writer and star of three two-minute segments on retirement readiness. Focusing on a simple and practical plan, he guides viewers on how to get started as well as how to gain and grow income.
Stein recently sat down with Bankrate to share his insights and recommendations for how to better financially prepare for the future.
Why are Americans finding saving for retirement so challenging? What aren’t they getting when it comes to retirement?
Well, what people aren’t getting is the basic idea of deferred gratification. They basically want to have everything they want now — but, of course, they also simultaneously want to have all the savings that they will need for their future. What they haven’t gotten is that you just can’t have everything all at once. So, they’re like children … and they think that everything should and will be provided for them by Mommy and Daddy — be it a real mommy or daddy, or an employer or the government. And that’s just not going to happen.
There needs to be a greater measure of personal accountability and responsibility out there because retirement is something we all know is coming and it’s something that we, if we choose to, can all actually do something about. If you want to live well at 75, you have to plan for that when you’re 45.
Yet there are still many out there who are convinced that the federal government will inevitably step in and come up with a solution that will save everyone who had not prepared for the reality of life in retirement.
To provide all of the future retiring baby boomers with a middle-class existence upon retirement, the sum of money needed would be so large that it would not be in the grasp of the federal government to raise, let alone provide. And so it’s just not going to happen — and it never has historically happened.
Social Security has always been just a small fraction of what people need to live on when they retire, and it will continue to be just a small fraction of what people need to live on when they retire. Now, yes, there’s been lots of talk lately of fixing Social Security in the future, but it’ll change only in the sense that there will be tremendous cutbacks in the amounts that will be paid to us middle-class and upper-middle-class people. But in terms of what’s ultimately going be paid out to those who perhaps hadn’t saved, well, they’re not going to get another $20,000 to $30,000 a year from Social Security.
What about those who are concerned and want to be prepared? Given the recent volatility in the stock markets, both here and abroad, there is more apprehension among investors than there used to be, prompting some to be more conservative with their money. Are they right in thinking that CDs and money market accounts are now preferable to stocks and bonds over the short term? Or is now precisely the best time to invest in the stock market?
If you want rewards, you have to take risks. If you don’t want to take risks, you can’t expect too much in the way of rewards. The reason you get those excess returns, the reason you get returns greater than you would otherwise get from having your money in a money market fund or a Treasury bond, is because there is that risk component to the stock market. And so the very reason some folks complain about and use to justify their not putting money into the stock market is the exact same reason why it pays off better than the less risky investments.
People have to be brave and go into it. Yes, there will be some periods of slumps. There may even be some periods of extremely prolonged slumps, and there is always a chance that you could lose a lot of money in a downturn, too. But all in all, the broad market indexes will over time be much more likely than not to give you a much better return on your money. Sure, it can be scary sometimes, but I guarantee you that back in July and August, back when the U.S. stock market went down, you had some very, very smart people, like Warren Buffett, buying stocks, putting significant sums of money into the market.
Now, not everyone might be well-served putting a lot of their money into the stock market. If you’re already a senior, this might not be a good idea. The woman who is 83 years old, for example, will be much better off keeping her money liquid in CDs or money markets that pay that safe-and-steady, 5-plus-percent rate of return. Even putting money into a broad-market index fund could be too risky for a person in that particular situation.
But for younger people, investing the bulk of their money in “safe investments” has two significant risks that cannot be minimized: the inflation risk and the longevity risk. When you’re young, almost all of your money should be in stocks. And only as you get older should you have more liquidity — more money in bonds or CDs.
And here I also want to add that I see a role for variable annuities to accumulate gains tax-free and then for regular (immediate) annuities to guarantee you money for your whole life. There are new versions of these with reasonable fees, inflation guarantees and other worthwhile features. They should not be ignored.
Your upcoming book, “Yes, You Can Supercharge Your Portfolio!” deals with how one can make one’s investments much better performing and safer from risks. Can you, in a nutshell, describe what it covers and what recommendations it makes?
This book is probably the most substantive that my partner-in-crime, Phil DeMuth, and I have written to date — to be honest, it’s 99.99 percent Phil’s work, with a word or two thrown in by me. It basically tells you everything you need to know about the value of diversification and the value of weighting according to volatility and size, weighting toward small-cap and foreign stocks in both emerging and established markets. Phil, in fact, gets into foreign markets and how they’re especially good because they’ll be a very good play on the falling dollar.
It’s the sort of book you’ll want to have tucked under your arm when you go and see a broker.
Index funds and Exchange-traded funds, or ETFs, appear to be a big part of that investment strategy.
Yes, I love index funds and ETFs. Index funds and ETFs are inexpensive to buy and own. They afford you immediate diversification, and they’re extremely tax-efficient investments. Their performance is terrific and you aren’t paying exorbitant fees to a fund manager. They’re also very stable, meaning you don’t have to worry about any unexpected changes a manager might make, or worry about the impact of a management change, or worry about winding up overexposed to any particular market sector.
Now, Mr. (John) Bogle and I might disagree as to which are ultimately better, but I find both index funds and ETFs equally good and attractive. Personally, I don’t see a huge difference between them.
And as for ETFs, I especially like EEM (iShares MSCI Emerging Markets) and EFA (iShares MSCI EAFE Index), as well as those that invest in REITs (real estate investment trusts), like RQI (Cohen & Steers Quality Realty) and, especially, ICF (iShares Cohen & Steers Realty Majors). Incidentally, they’re now practically giving these away, in my opinion. I mean it’s just a joke how cheap they’ve become.
Since we last spoke back in October 2007, the news concerning real estate has been consistently negative. Have you changed your mind about the aforementioned real estate-based ETFs or have you added any new ones to your original recommendations?
I am buying RQI and DBC (PowerShares DB Commodity Index Tracking fund) continuously.
Some market pundits advocate as much as a 40-percent allocation to foreign stock funds. Is that too much to have invested abroad today?
No. I actually think that that is a very good idea. Forty percent, today, isn’t at all an unreasonable allocation. I personally don’t have that much invested in foreign markets, but I should. Having a higher exposure to foreign markets than we’ve been used to is now a positive, not a negative.
Your book gives straightforward guidance about supercharging a portfolio for growth. Will it also be possible to use it to create a supercharged portfolio for income?
No, no, this new book is not about income, it’s about growth and definitely not about income or an income portfolio. We actually wrote a different book on that subject years ago called, “Yes, You Can Become a Successful Income Investor!” That’s still a damn good book, but it’s now quite out of date because, since it was written, the Federal Reserve changed interest rates and other things in the economy have also changed. It’s still a very good book to read because, generally, its principles are still valid.
Returning to the growth portfolio then, when and how should one go about rebalancing?
OK, I don’t rebalance at all and, actually, I don’t believe in rebalancing. If the stock part of your portfolio is doing well, then there is no reason why things should be rebalanced into bonds.
The only exception is when you get much, much older. Only when you are considerably older should you seriously consider rebalancing out of stocks and into bonds — and then only into short-term bonds or into cash, but never long-term bonds. Stocks just give you a much greater return on your money, and only when you get into your 70s should you really consider moving into other more liquid investments or cash.
Have you any final words of advice or thoughts you’d like to share with Bankrate readers?
If there’s one thing I would like you to really emphasize it is this: It’s great to have money, but it’s also great to lighten up about it. Try to approach it all with a free spirit and not to approach it all as some sort of morbid duty. Nobody is ever going to get it perfect, so do the best you can. Not even a Warren Buffett is going to get everything right all of the time, so don’t beat yourself up if you don’t.