Do As Suze Says, Not As Suze Does

February 27, 2008

Personal Finance Guru Suze Orman has done a decent enough job teaching textbook personal finance tips and tricks. When she dives into investing advice though, we often find her a little lacking. Take for example her Yahoo Finance "Money Matters" column today to sooth skittish investors:

Declines of more than 10 percent in the major stock market indexes over the past few months, along with the growing expectation of a recession, have set off a massive investor call to action.

By action I mean the urge to flee stocks for the apparent safety of bonds or cash. For the vast majority of investors, that move can be a costly mistake....

...Fear is natural, but there's a right way and a wrong way to handle fear when it comes to finances. Knowing when to act and when not to act is one of the keys to financial security.

Right now, we're all being put to the test.

....For these long-term investors, the best advice is to do nothing. Yes, nothing. If you have a well-diversified portfolio that's focused on building value over the next few decades, it doesn't make sense to overreact to a few months of volatility and bail out on stocks. It's no fun watching your portfolio fall, but you need to focus on a bigger problem: If you put all your money into super-low-risk investments such as money markets or stable value funds, you increase your risk, too -- the risk that your portfolio won't grow enough over time to build a hefty retirement account...

...If your investment time horizon is 10, 20, or 30 years, stay invested in your stock funds and ETFs. Over time (meaning decades, not weeks), stocks have consistently outperformed other types of investments. That includes periods when the stock markets fall. Doing nothing is going to net you better long-term results than doing something."

Buy and hold stocks through think and thin. Don't panic sell after a drop. If you have a long time horizon, stocks are the place to be. Timeless advice that now has that Suze Orman stamp of approval. Too bad she doesn't seem to follow it with her own money.

In a New York Times interview last year, we learned this about Suze's portfolio:

How much are you worth these days? One journalist estimated my liquid net worth at $25 million. That’s pretty close. My houses are worth another $7 million...

What do you do with the rest of your money? Save it and build it in municipal bonds. I buy zero-coupon municipal bonds, and all the bonds I buy are triple-A-rated and insured so that even if the city goes under, I get my money. I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.

Do you play the stock market at all? I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care."

So there you have it. Suze Orman has about 3% of her net worth in stocks, 21% in real estate, and 76% in ultra-safe muni bonds. As any professional can tell you, in the long run stocks beat bonds and real estate. Apparently Suze makes here money giving advice, not following it.

And just to poke more fun at the tanned personal finance guru, we'll leave you with this quote from last year's interview:

Do you enjoy spending money? Oh, yes. My greatest pleasure is still flying private. I spend between $300,000 to $500,000, depending on my year, on flying private."

Remember that gem next time a personal finance guru tells you to scrimp on "expensive" lattes to save for retirement.

More MAXattacks on Suze:

The Great Real Estate Bubble

what did you expect
Anonymous — POSTED April 14th, 2008 2:05AM

i can believe she is a CFP

Anonymous — POSTED April 16th, 2008 12:21AM

i am sure that what you ment was, you can NOT believe she is a cfp (active or not)

I watch Suze's show weekly.
Anonymous — POSTED March 17th, 2008 1:53AM

I watch Suze's show weekly. She's worth 25 million, has steady income from books and show. She does not need any investments in the stock market. I think I saw her on Larry King live talk about her municipal bond investments.

If the rest of us invested in municipal bonds, we would not make it to our targets by retirement. We need the stock yeild. She does not. She doesn't even need to touch the 25 mil in bonds which will grow quite nicely as is.

If I was worth 25 mil and had the income she has from books and the tv show, I'd probably invest very safely as well.

I guess your article is trying to expose Suze for recommending buy and hold to the public while she invests in muni bonds. I'm sure she would say if you were worth 25 100 percent munis might make sense. Otherwise you need stocks.

Anonymous — POSTED April 16th, 2008 12:32AM

munis? how does that affect the AMT for someone who makes 25mil?? Also, if "her million" was just to gamble away, why not go to Vegas or give it to a money manager (aka someone who has there CFA) who for the long term could make them more money (alpha) with less risk (beta/ standard deviation) over a long term than than the S+P 500. Maybe she should listen to someone who believes in the market.....

hypocrisy by a financial
Anonymous — POSTED February 28th, 2008 4:29PM

hypocrisy by a financial adviser. shocking. next, there will be gambling in the casino at rick's cafe in casablanca.