Ben Stein's perfect portfolio

(Fortune Magazine) -- It's no longer possible to win Ben Stein's money. But there is one thing we can gain from the actor-cum-economist: financial advice served up with a dose of humor. Fortune's Ellen Florian Kratz asked Stein to answer Fortune readers' questions about retirement and added some of her own regarding his homebuying addiction and his dislike of Treasury Secretary Hank Paulson.

What do you recommend for a portfolio distribution in light of the collapsing dollar and peak oil? - Joseph Scheppe, Morgantown, W.Va.

Staying flush: To keep yourself afloat, Stein recommends having 20 percent of your funds in cash.

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First of all, I don't know that we are at peak oil. What I generally recommend for the noncash portion of your portfolio - and this has been unbelievably successful - is a mix of various index funds and exchange-traded funds [ETFs], with roughly 25 percent in an S&P 500 index fund from Vanguard or Fidelity; 25 percent in a Vanguard or Fidelity total stock market fund; 25 percent in EFA, which is an ETF for developed overseas markets; 15 percent in EEM, an emerging-markets ETF; 5 percent in ICF, the ETF for real estate investment trusts; and 5 percent in XLE, which would be your energy fund.

I'm not a big lover of bonds because I think the risks involved in buying long-term bonds are tremendous, and the payment from short-term bonds is trivial. That said, you should have 20 percent of your portfolio in cash. I would say if you can get 5 percent or more on your cash in a CD or savings account, go for it. That way, you have it to tide you over if you lose your job or your health worsens.

How do you find a balance between the gratification of material desires today vs. investing for future retirement? - Jerilyn Dever, Los Angeles

It would be awful to live a penurious, miserable, horrible, boring existence while you're young, but it would be even worse to be starving or in desperation or unable to sleep when you're old. There has to be some balance. We need to provide adequately for the fact that we're probably going to live 20 years after we retire. But you genuinely get more enjoyment out of things when you're young than when you're old. When I was young, I just enjoyed the things that I bought so much more. Even a hamburger tasted better when I was young than it does now that I'm old.

Is it better to invest your money if you can earn a better return than your mortgage rate, instead of paying off your mortgage? - Dominic Cara IV, Springfield, Mo.

Yes, that is absolutely true. Generally speaking, if you have a very low mortgage rate, it is better to invest the money than to pay off your mortgage. It's an interesting fact - the rate of return on your mortgage is the interest you're paying on it. If you have a 6 percent mortgage and you're paying it off, you're earning 6 percent. If you can earn more than 6 percent in the stock market, you should probably put it in the stock market. But, on the other hand, pay it off in an expeditious way. It's good to have it paid off, or at least mostly paid off, by retirement time.

In light of the housing decline, when is the best time to buy a house? - Brad Lynk, Arlington Heights, Ill.

When you find one you love. If you find one you love, don't worry about whether or not you're at the bottom of the housing cycle. Eventually it will all work out.

You've said that if the average American handled her finances like the U.S. government, she'd be in big trouble. - Mee Sun Choi, Morganville, N.J.

Well, she'd be broke and probably put in prison. You can't have the government running these enormous deficits forever. You can run them for a very, very long time. And at this point the deficit has subsided, so it's probably not a danger. At one point we were running such big deficits that it was a serious danger, but I don't think the deficits are that scary at this point. But, in general, there's something wrong when, in a period of extreme high prosperity, which is what we have now despite the recent slowdown, we're running a deficit. There's something wrong there.

What's the biggest investment mistake you ever made? - Sergey Fern, New York

Selling the house in Aspen that I owned. I had a beautiful, big house in Aspen, and I foolishly sold it. Also, I had a chance to buy a big, beautiful apartment in New York for virtually no money, and I didn't do it. That was an incredibly big mistake. [Both happened] around 1980. It was a period when I was making a lot of mistakes. The U.S. was in a serious recession, and I was spooked by it.

Who are your five biggest financial influences? - John Mitton, Superior, Colo.

My father; Warren Buffett; Phil DeMuth, my financial adviser right now; George Diskant, my agent and a very good financial guru; and Kevin Hanley, my broker at Merrill Lynch.

What can we do to improve basic financial education? - Jamie MacMillan, Fairfax, Calif.

There should be a course in basic financial education in this country. That's the best question so far. There should be a course in financial literacy taught in every school in America.

I keep hearing that you should sell all your stock holdings in the late spring and buy back in early fall. - Tom Wawersich, Frisco, Texas

We don't know why, but "sell in May and go away" is a real effect. It does seem to work. But I don't do it because I'm scared that one year it's going to stop working, and then I'll have missed some big stock market gain.

Do you think that the market is going to crash as a result of the baby boomers cashing out of their 401(k)s? - Bill Brasch, Philadelphia

No. There are plenty of buyers all around the world.

Is this a good time to buy a REIT, considering the real estate market? - Rod Mayer, Park Ridge, Ill.

REITs are very high, but over long periods of time they will go higher. I would expect the next move in the next year or two is for REITs to be down, but over long periods I would expect them to be up considerably.

What do you enjoy more - making "Ferris Bueller's Day Off" or commenting on financial shows? - Catherine Holman, Boca Raton, Fla.

"Ferris Bueller," by far. I just knew it was a magic moment. I just knew it was going to change my life.

Why do you have so many houses?

I have so many houses because it's a cruel addiction. I don't know what to say. I'm sick on the subject of houses. You know, I'm not a totally rational human being. I make many, many mistakes, and one is, I have too much real estate. At this point I have seven houses and also a very pleasant lot in Malibu, which I may someday build on. I probably shouldn't have bought so many, but I'm obsessed with houses. I just love walking in the door of a house and knowing it's mine.

I've noticed in your column digs against Hank Paulson. What do you have against him?

I think he's just a shill for his friends on Wall Street and for irresponsible executives. I think he does absolutely nothing to protect the ordinary investor or the little guy. It's just shocking how his interest seems to be entirely in protecting those who already have instead of those who need to get. I'm shocked by his contempt for the ordinary investor. That's not the Republican way. It is supposed to be to protect the small investor, not the big investor.

Speaking of the Republican way, how can you be a conservative and also call for tax hikes on the rich?

The conservative way is to balance the budget. They try and try to say we can do it by cutting spending, and they never do.

Of the corporate governance lapses you rail against - options backdating, CEO pay, management buyouts - which is the most egregious?

Management buyouts. They're just another form of looting. There are some buyouts that are not a form of looting, but I think in general they're a form of looting the stockholder. They have to pay the stockholder less than the corporation is worth, or else the deal won't work.

Some experts say we may be saving too much.

That's absolute nonsense. People are not saving anywhere near enough. The average savings for retirement is something like $50,000. A lot of baby boomers have no savings at all for retirement. It's insane to think that people are oversaving.