Suze Orman or Crazy Joe?

Have you ever seen the cartoon Shark Tales?  There is a deranged hermit crab that normally lives in a dumpster.  He all of the sudden decided to become Oscars financial advisor.  Oscar is an underachieving worker in the Whalewash of Reef City. He wants to be rich, but his schemes always fail and he owes five thousand clams to Sykes (a loan shark).  My favorite line in the movie was at the end when everyone was coming clean from there little lies…Crazy Joe: remorsefully said “And I’m not a real financial advisor!”

I get this question from people all of the time.  “What do you think about Suze Orman’s advice?”  I have many answers.  Here is an interview that was done back in 2007 with Her.  It was an article that I mentioned to people to check out.  So I’ll just post it here so it’s easier to find.  I will throw in a few of my comments on the content.

The New York Times

February 25, 2007

Questions for Suze Orman

She’s So Money

Interview By DEBORAH SOLOMON

Q: As one of the most widely read financial gurus of our time, why would you write a book like “Women and Money,” which is based on the regressive premise that women are birdbrains when it comes to managing money? I would think women are better at saving than men. No, they save and then they give it to their best friends, who need it. They give it to their children, who need it. They give it all away once they’ve saved it.

Isn’t that admirable? That depends on what it leaves them with. It’s not admirable when it leaves them with nothing. I want to change women from savers to investors. Why then is most of Her money in the form of a saver? I do think eventually they should all have Roth I.R.A.’s. You don’t want an I.R.A. You want a Roth I.R.A., if you qualify.  Why should all women have a Roth IRA?  That is a blanket statement that many financial advisors make.  Where is the proof?

I know. I read the book. Did you like it?

I found it a little basic. I can’t believe you thought it was simplistic. You are in denial. For instance, do you have a will and a living revocable trust in place?

No. Oh, my God! Actuarially speaking, your husband will die before you. That’s actuarially speaking. Your husband, let’s say, has just died. You now are by yourself. You have a stroke. You’re totally incapacitated. It’s reality. It happens. Who is going to be able to write your bills for you and take care of the money you have?

Do we have to decide this right now? Girlfriend, you don’t have a healthy relationship with yourself or your money. You put yourself on sale. You have shame, and you have blame. You view money differently because you are a woman.  What does that even mean?

Is this what feminism has bestowed upon women? The right to berate other women? Women don’t understand money. They will go into debt to pay for this and that.

Are you married? I’m in a relationship with life.  HUH??? My life is just out there. I’m on the road every day. I love my life.

Meaning what? Do you live with anyone? K.T. is my life partner. K.T. stands for Kathy Travis. We’re going on seven years. I have never been with a man in my whole life. I’m still a 55-year-old virgin.

Would you like to get married to K.T.? Yes. Absolutely. Both of us have millions of dollars in our name. It’s killing me that upon my death, K.T. is going to lose 50 percent of everything I have to estate taxes. Or vice versa.  Good Planning!

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.  I wonder what it is today?

What are your qualifications for giving financial advice, which you do in your books, your column in Oprah’s magazine and your CNBC television show? For seven years after college, I was a waitress at the Buttercup Bakery in Berkeley, and from there I got a job at Merrill Lynch as an account executive, from where I went to vice president of investments for Prudential-Bache Securities. I started my own firm in 1987.  AND?

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.  Nothing against spending money but this ist he person giving you advice.  Most people taking her advice are not even close to being in the same position as her.

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. Sounds like the same advice she gives right? I take a little lower interest rate to make sure my bonds are 100 percent safe and sound.  I understand that she tells everyone else to stick it in mutual funds.

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.  This makes me laugh.  She doesn’t even live what she teaches.  She talks about it like its gambling, yet she tells us to plan our futures on it getting a 12% return?

We need to really beware of who we take our advice from.  Let’s stop basing it on emotions and hype and start looking at the facts.

Ask The Expert. Umm?

Here is an article written by By Walter Updegrave, Money Magazine senior editor.  I want to point out some of the flaws in traditional thinking.  As I add my comments to this article I want to give my disclaimer…My comments are not aimed at the writer or the magazine.  I don’t know him.  My aim is at traditional thinking and ideologies.  The article will be in black and my comments will be in red.

Do you want to be your own banker?

Buying an ‘infinite banking’ life insurance policy may not be the best way to build long-term wealth for retirement.

By Walter Updegrave, Money Magazine senior editor

December 30, 2008: 12:27 PM ET

NEW YORK (Money) — Question: An adviser has been telling me about a concept that he calls “infinite banking.” Apparently, it involves using a life insurance policy to become my own banker. It seems like a good idea, but something doesn’t seem quite right to me. Do I have cause for concern? – Matt, St. Louis, Missouri

Answer: This concept that your adviser is touting has nothing to do with banking, It has everything to do with banking…you are doing the same thing banks do which is turn your money over and over and capture interest on loans. at least not in the sense that any normal person thinks of it.  Is normal person thinking what has gotten everyone in the position they are in i.e. 401k’s down 50% and foreclosures out of control. And the only thing “infinite” about it, in my opinion,  Opinions are the problem with all the advice that has been given over the last 30 years.  Why don’t we find out the facts when making life decisions. is that it represents yet another in the seemingly infinite number of ways people can come up with to induce you to invest in life insurance.  I guess new ideas are out of the question since all of the traditional ones have done so well.

Now, I want to be clear. I have nothing against life insurance. Virtually everyone who has family members depending on him or her for their livelihood should have a life insurance policy,  No one needs life insurance…it’s a want. as it’s the only financial product that can replace income when a breadwinner dies.

I think the best way for the overwhelming majority of people to get the valuable protection life insurance affords is through a low-cost term insurance policy, Has anybody ever stopped to prove to you that it’s the best way to get protection? although in some circumstances other types of policies can also make sense.

The downside

What I do object to, however, is advisers employing mumbo-jumbo and financial sleight of hand to convince people that they should be plowing money into certain types of life insurance policies when they’re likely better off in more conventional investments or simply funding regular old retirement plans like 401(k)s and IRAs.  If funding a 401k instead is better then why don’t we just go to Vegas and put it all on red…at least you could have free drinks.  It seems like “mumbo-jumbo to tell someone to keep funneling money into a stock market that just lost 40-50% of it’s value and there is no end in sight.

When you strip away the gibberish surrounding pitches like infinite banking,  How about Dollar Cost Averaging, Diversification, Asset Allocation and Buy Term and Invest the Difference.  Everyone of these “pitches” have FAILED. it basically comes down to this: You should invest in cash-value life insurance because it pays dividends Remember to state Non-Guaranteed Dividends (which aren’t taxed as long as they remain within the policy) and you can borrow against the policy. Somehow, these dividends and the ability to borrow are supposed to make you a banker. Right.  If the homework would have been done before this statement it would have been found that those thing are not what makes you a banker.

At its core, this spiel is similar to other questionable life insurance sales tactics I’ve written about, such as the “7702 (a) Private Plan” pitch, which essentially couches life insurance policies as an IRS-approved retirement plan.  Do your homework on these policies.

I don’t know what, if any, specifics this adviser discussed with you. But what these sorts of sales presentations tend to gloss over are the high costs of investing via life insurance The truth is that as a long term strategy term insurance is the most expensive way to buy life insurance…If you don’t die during the specified time period then you have wasted all of those premiums plus what you could have done with them somewhere else and the fact that borrowing from a policy can have serious downsides.  If not managed correctly.  I would say it’s a lot cheaper then losing 40% of my retirement account.(See more on those drawbacks.)

To be honest, I don’t think this sort of proposal is worth a lot of serious consideration. Obviously there was not much serious effort put into research before writing this article. But if you’re sufficiently intrigued by it and the adviser has given you concrete figures and projections, you can always hire a financial planner on an hourly fee basis to do an independent analysis.  The same financial planner that told me to max out my 401k and fund my Roth IRA.  The same one who told me that Assett Allocation will keep my money going up even when the markets down.  The one who told me I would have enough to retire at a certain age and then 2008 happened. The same one that projected out my future using a 12% return because that was the average and the market will always be on an upward trend. The one who told me to save for my kids education in mutual funds. I would say that I don’t think I would spend any money on planning that has been proven not to work.

Lower life insurance costs

Ultimately, I think what you’ll find is that your best shot at building long-term wealth for retirement and your overall financial security is to keep your life insurance costs down by buying a term policy. That will free up more money that you can then contribute to tax-advantaged retirement accounts like 401(k)s and IRAs (preferably investing that money in low-cost investments like those on our Money 70 list of recommended mutual funds and ETFs).  Thats interesting that after  beating up a legit strategy that was not fairly looked into…There is a reccomendation to buy specific mutual funds HMM?  If you look hard enough you will find that there is always some financial motivation to peoples advice.

So the next time this or any other adviser starts telling you he’s going to let you in on some little-known and unique strategy that will put you on the road to riches, just remember: There is no magical path to financial success. There are, however, an infinite number of ways you can get hurt looking for one.  Or maybe we could start thinking for ourselves instead of others doing the thinking for us.

Are Women Hit Harder In A Bad Economy?

I have thought about this question many times. In my Financial education practice I have noticed 2 major symptoms of Women hurting more than men in hard economic times.

1. More women are looking to supplement their incomes.

This symptom could be due to many issues. It could be a Single mom trying to raise kids. It might be a wife contributing as the breadwinner because the husband lost his job. Another reason might be that Women simply get paid less often times.

2. Women Have been marketed to more than ever.

In the last several years women have become target and niche markets to many businesses. They are now investing more money into risky investments. They are investing more money into scams and bad education packages that teach wrong information.

I am very pleased with the equallity that is here now. http://www.nuwireinvestor.com/articles/women-more-worried-than-men-about-economic-downturn-51633.aspx

The big question is…How do I make more money and still keep all of my other priorites in check. There are a lot of ways to make more money. You could get a second job, Start a business, Network marketing, and or make more on your investments.

A good book to explain these options is Cashflow Quadrant by Kiyosaki. http://www.richdad.com/store/ProductDetail.aspx?id=22

There are a lot of people who will flourish during down times. We just need to figure out how.