Wednesday, June 18, 2008

The Trouble With Suze Orman

The fundamental problem I have with Suze Orman, the world-renowned financial adviser, is that a lot of her advice stinks. And the good advice she often relays may persuade people to heed all of her advice, including the advice that stinks—with regrettable results.
Am I just envious? Because she’s rich and famous and I’m neither? I don’t think so. Other financial writers are similarly unhappy with Suze. And I myself happen to be an admirer of Jane Bryant Quinn, who is also rich and famous—but deservedly so.
In the July issue of Money, you can see what I mean about Orman. Sometimes she says things that need saying. For example: She loathes variable annuities, especially those redundantly stuck into retirement accounts. She mentions the extra fees, the tax problems, the prepayment penalties. Okay, sometimes variable annuities make sense, but I wholeheartedly agree that for many people they are undesirable.
Next: How do you find an adviser you can trust? Her answer: They tell you “right up front how they make their money.” The additional advice she gives is also good.
But…these days she’s come out against index funds. She was once a big fan, but “today I think you have to be more active, and I like exchange-traded funds that let you own particular sectors, like iShares MSCI Emerging Markets, United States Oil Fund or the Metals & Mining SPDR.”
Now, most of her readers are not sophisticated investors like you and me. They’re average people, desperate for good, impartial advice. Telling them to avoid a diversified index fund and move into emerging markets, energy, and commodities – at this time, and presumably big time – seems reckless. Perhaps along with a diversified index fund, they might consider dipping their toes into other, riskier investments.
She also sneers at target-retirement funds—which, to my mind, may be the best investment idea to come along since money-market funds. They seem to be just what Aunt Sally and Uncle Fred need: a well-diversified fund that automatically grows more conservative—especially if the fund is offered by top families like Vanguard or T. Rowe Price.
But such funds offend Orman. “Give me a break! You should invest in bonds only when interest rates are going down.”
Actually, even a beginning student of investing knows that bonds can (1) provide regular income, and (2) dampen the volatility of a stock portfolio. Sometimes they even can perform better than stocks over long periods of time—like the entire decade of the 1970s.
As for investing in bonds only when interest rates are going down, give me a break. Has Orman never heard the classic formulation that there are two types of people in the world—1. those who don’t know where interest rates are going, and 2. those who don’t know that they don’t know where interest rates are going?
Orman’s advice, writes a Money magazine editor, is “always clear and generally unimpeachable.”
Occasionally dangerously impeachable, I myself would say.

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