Personal Finance: Ben Stein recommends investing in alternatives

By Dave Carpenter AP Personal Finance Writer Ben Stein has a new mantra. The economist, actor, comedian and commentator is still best known by many for his unanswered roll call of "Bueller? ... Bueller?" in the 1986 film "Ferris Bueller's Day Off." For investors, his best line these days can be summed up as: Diversify! Diversify! Beyond the usual stocks and bonds, that is. After many suffered through years of up-and-down performance with a traditional approach, Stein says it's time to move beyond conventional thinking. That can mean investing in anything from REITs and futures to mutual funds that follow more arcane strategies, as outlined in "The Little Book of Alternative Investments." It's the latest title he co-authored with investment adviser Phil DeMuth. As well as a quest for better returns, the idea is to protect yourself against the next market collapse. Stein commented about the economy, alternative investments, the markets and other topics in a recent interview with The Associated Press. Here are excerpts: Q: What's your prognosis for the economy? A: I think the recovery will continue. There's some question about whether or not the end of stimulus spending will be a big problem. But since we didn't really seem to notice much upward movement as a result of the stimulus, it's hard to believe there will be a lot of downward movement when the stimulus is removed. Q: How optimistic are you about prospects of a settlement in Washington to help get us out this fiscal mess long-term? A: There has to be a solution to it. I think we're getting to the point where they just cannot keep avoiding it. They'll try, because the Republicans will not want to raise taxes and the Democrats have a lot of interest groups that they want to protect. If I may say this (Stein is a Republican), the Republicans in particular just absolutely have to get over this idea that it's unholy to raise taxes. It's NOT unholy to raise taxes. In periods of fiscal emergency, it is necessary to raise taxes, and I think we're approaching a time when it's an absolute necessity. Q: Why should average investors dare to be different, as you put it in the book, by venturing into alternative investments such as futures, and mutual funds that model hedge funds? A: By buying these investments, you will be spreading out your risk among them. If you have everything in the stock market and the market moves drastically against you, the temptation is to get out while you still have something left. Whereas if you have lots and lots of diversification so that any movement in the stock market does not drastically affect your net worth, you can stay in longer and then reap the benefits when the market recovers. Q: Aren't most investors going to be afraid of these investments, or find them too much work to research? A: It's partially fear, but partially the fact investors don't know what they are. We give a long list in our book of mutual funds that have strict SEC regulation that mimic the performance of different vehicles in the world of hedge funds. Putting money in some of these funds as diversifiers is a very good idea. If that's too scary, then Phil and I recommend just having your portfolio in VTI (Vanguard Total Stock Market ETF), which is a worldwide index fund. It pretty much has a little bit of everything. Just put 70 percent in that -- or 60 percent if you're a little bit older -- and 30 percent in cash or short-term Treasuries. Q: What commodities should individual investors focus on? Is gold still a smart buy at more than $1,500 an ounce? A: I don't recommend that the small individual investor buy individual commodities at all. Published: Wed, Apr 27, 2011