Why Suze Orman SHOULD be in Bonds, and You Should NOT

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Suze Orman has been getting her share of criticism lately. Liz Weston has pummeled Suze for advising folks to make minimum payments on credit cards while building up an emergency fund. And now Orman is taking heat for investing her portfolio in bonds, while advising others to invest in stocks. For example, in what is without doubt the worst piece of personal finance journalism in the history of personal finance AND journalism, Helaine Olen takes a swipe at Orman (“Orman also urges people to invest for retirement in the stock market, while admitting the bulk of her savings is in municipal bonds.”) in an article called The End of Personal Finance. I love the use of the word “admitting” in that sentence, as if Orman were confessing to a crime.

The Orman “do as I say, not as I do” approach to personal finance advice underscores an extremely important aspect of investing–never accept more risk than you must. At last count, Orman had about $20 million invested in bonds. If I had $20 million, I’d put in bonds, too. Why? I wouldn’t need to take on the added risk of the stock market in order to reach my financial goals. So the fact that Orman has $20 million in bonds, yet tells us regularl folk to put our few thousands into stocks, is absolutely correct.

I’ll have more to say about Helaine Olen’s piece later this week, but until then, here are some truly fantastic articles and carnivals to check out:

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Published or Updated: December 6, 2011
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Mr. GoTo says:

    This also explains why we shouldn’t be taking investment advice from Warren Buffet. The risk profiles are not even in the same universe.

  2. Suze should clarify herself with some kind of comment on “this is what I would do in your situation…” kind of thing. The whoever girl who attacked her is just that, a whoever girl. She’s trying to make a name for herself by attacking PF staples. Wow, that whoever is so original.

    • DR says:

      Weakonomist, I don’t know the journalist, but something tells me I should. To my shock, BoingBoing picked up the article, with positive comments, I might add.

  3. DR says:

    Mr. Goto, nice point. Because of the old saying, if you can’t beat ‘em, join ‘em, I own Berkshire stock (B’s, not A’s, I’m sorry to say).

  4. Shadox says:

    Hmmm… I am not sure that your rationale works. Here’s an example:

    Say that you are a poor saver and only have a few thousands set aside and retirement age is fast approaching, by your rationale it would make sense to go to vegas and put it all on Red… the fact that you need a better return does not necessarily mean that you should take a higher risk, as illustrated in my example above. Your asset allocation should be based on two parameters and two parameters only: (i) your tolerance for risk; (ii) your investment horizon.

    Suze Orman may be less tolerant for risk than most, and in that case investing the bulk of her assets in bonds may be right for her. However, it has nothing to do with how much money she has. The fact that you need a higher return, does not mean that you should accept more risk. It may be an indication that your plans are not very realistic and that you should scale them back… am I making any sense?

    • DR says:

      Shadox, tolerance for risk is an important consideration, but I think people overstate this. Sometimes the biggest “risk” we should fear is not market losses, but rather, reaching retirement without enough money to survive. Also, saying that you should never accept more risk than you must does not mean that ANY risk is acceptable.

  5. Patrick says:

    If I had $20 million in the bank, I would probably be a little more conservative with the bulk of it. Growing my wealth would still be important, but wealth preservation would probably take precedence.

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