Ben Stein: In Love With ETFs—And Cash

January 12, 2011

Invest with ETFs, but don’t forget that cash is a ‘spectacular’ alternative investment, Ben Stein says.

Ben Stein, the actor, author and television commentator, is wild about indexing and ETFs. Stein, who is speaking at's "Inside ETFs Conference" in February, said he can’t figure out why anyone would invest in any other way. Believing they can beat the market is the biggest mistake most investors make, he said.

Stein also told Managing Editor Olivier Ludwig that alternative investments are one part of his asset allocation plan he regrets not having paid more attention to, and called cash the most spectacular alternative investment of all.

Ludwig: Everyone says you love ETFs.

Stein: I do love ETFs. I’m not a big stock picker, and I think, generally speaking, you do better with an index. I’ve been boosting indexes ever since I read John Bogle long ago talking about what a great idea index investing was. I totally believed him, and have found it to be true in my own life.

Ludwig: You don’t worry about the things Bogle worries about, in terms of people using ETFs irresponsibly and trading them excessively?

Stein: You can use any investment irresponsibly, and if you have broad enough ETFs—I don’t favor narrow ones—things can hardly go wrong. You will outperform individual stock pickers, you will outperform the people on TV who are waving their arms around saying they’re going to outperform you. You’ll outperform just about everyone. Every few years, some active stock pickers will outperform you, but in general, you’ll outperform everyone else.

Ludwig: Apart from the passive vs. active debate you’re wading into, what else about ETFs is worth recommending to investors?

Stein: Their low prices, and they can give you both breadth and focus. For example, they are a brilliant way to invest in countries and in certain industries and sectors. But I generally like broad ETFs—the broader the better. I don’t want to claim any expertise in picking stocks. When I was a younger man, I seemed to have some sort of gift for it, but I don’t seem to have that gift anymore. So I’d much rather go with ETFs, the broader the better. I sort of don’t understand why anyone would go any other way.

Ludwig: Which country ETFs do you favor?

Stein: I’ve had good luck with the Canadian one [(iShares MSCI Canada Index Fund (NYSEArca: EWC)]. And for a while I was doing really well with the Australian one [iShares MSCI Australia Index Fund (NYSEArca: EWA)]. But not anymore. I’ve done well with Eastern European ones too, though not quite as well anymore. I’ve had dozens and dozens of ETFs. When you see an ad for the many varieties of ETFs and you wonder who on earth could be buying those, the answer is Ben Stein.

Ludwig: What about sectors?

Stein: I do some sectors in terms of natural resources, and especially energy-related natural resources. And for a while we all know those did spectacularly well; then they had a dramatic correction, and now they’re doing really well again. But again, the bulk of my savings is in diversified indexes. The only active picks I have are Berkshire Hathaway and some companies that pay a fantastically good dividend.

Ludwig: What about the active ETFs? Are you a believer that’s going somewhere, or is that a nonstarter?

Stein: More power to them, but I’m not following them. I probably should look into that more. But Mr. Bogle completely sold me on passive investing a number of years ago, and I’ve been happy that he did.


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