Do s and Don ts to Protect Your Financial Life BEN STEIN

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1 $ of THE LITTLE BOOK BULLETPROOF INVESTING Do s and Don ts to Protect Your Financial Life BEN STEIN & PHIL DEMUTH New York Times Bestselling s e l Authors

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3 Additional Praise for The Little Book of Bulletproof Investing Leave it to my media pal Ben Stein to put me and the media in perspective. We can scare you. That doesn t mean you should let us. Both Ben and Phil DeMuth offer some timely investment tips on how you can make damn sure we don t! Neil Cavuto, Senior Vice President and Anchor Fox News, Fox Business News

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5 THE LITTLE BOOK OF BULLETPROOF INVESTING

6 Little Book Big Profits Series In the Little Book Big Profi ts series, the brightest icons in the fi nancial world write on topics that range from tried-and-true investment strategies to tomorrow s new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today. Books in the Little Book Big Profi ts series include: The Little Book That Beats the Market by Joel Greenblatt The Little Book of Value Investing by Christopher Browne The Little Book of Common Sense Investing by John C. Bogle The Little Book That Makes You Rich by Louis Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M. Darst The Little Book of Bull Moves in Bear Markets by Peter D. Schiff The Little Book of Main Street Money by Jonathan Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B. Carlson The Little Book of Bulletproof Investing by Ben Stein and Phil DeMuth

7 THE LITTLE BOOK OF BULLETPROOF INVESTING Do s and Don ts to Protect Your Financial Life BEN STEIN PHIL DEMUTH John Wiley & Sons, Inc.

8 Copyright 2010 by Ben Stein and Phil DeMuth. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) , fax (978) , or on the Web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) , fax (201) , or online at Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) , outside the United States at (317) or fax (317) Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at Library of Congress Cataloging-in-Publication Data Stein, Benjamin, The little book of bulletproof investing : do s and don ts to protect your fi nancial life / Ben Stein, Phil DeMuth. p. cm. (Little book, big profi ts series) Includes index. ISBN (cloth) 1. Investments. 2. Finance, Personal. I. DeMuth, Phil, II. Title. III. Series. HG4521.S '8 dc Printed in the United States of America

9 For Alex and Julia

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11 Contents Introduction: Check In with the Control Tower 1 Chapter One The Nut Behind the Wheel: Behavioral Finance in One Lesson 11 Chapter Two Wall Street Therapy: For Good and for Evil 23 Chapter Three How Not to Invest: Kids, Don t Try This at Home 39 Chapter Four How to Invest: It s Not as Fun as It Used to Be 53

12 [ X ] CONTENTS Chapter Five The Holy Grail of Investing: Having Your Cake and Eating It, Too 67 Chapter Six Bulletproofing Your Investments: A Recipe for Setting Up Your Tangent Portfolios 83 Chapter Seven Pulling the Trigger: Practicing Portfolio Management at Home for Fun and Profi t 95 Chapter Eight Become the CEO of You, Inc.: Get Wise, Get Smart, Get (Further) Educated 107 Chapter Nine Human Capital 411: Your Personal Human Potential Movement 119 Chapter Ten Save Til You Drop: Topping off Your Piggy Bank 135

13 C ONTENTS [ XI] Chapter Eleven Houses of Blues: Welcome to the Neighborhood of Poverty 149 Chapter Twelve Can You Still Retire Comfortably?: Retirement Was Overrated, Anyway 163 Chapter Thirteen The End Game: If Something Cannot Go on Forever, It Will Stop 181 So Long, Farewell 197 Acknowledgments 201 About the Authors 203

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15 Introduction Check In with the Control Tower H ERE IS THE FINANCIAL PROFILE of many people you know: In 2007, Americans had a zero savings rate and totally inadequate savings to put against the liabilities they will face over the course of their prolonged retirements. After the market panic and the recession of , what little savings they had were drastically reduced (even though the savings rate rose above zero), alongside the value of their biggest single asset the equity in their homes vaporizing nearly everyone s plans for a serene retirement. This means