CNBC had a special Suze Orman Show last week, and I finally got a chance to watch it on TiVo. Recently, I’ve kind of lightened up on my view of Suze. Like all gurus, she makes blanket statements that may not apply to everyone, but at least she’s not pumping a get-rich-quick scheme involving real estate or stock-picking that is bound to produce more losers than winners. Overall, the show was pretty good for what was basically an hour of sound-bite-based financial advice for people (like me) with short attention spans.
Here are her “action points”, which again seem to be generally good advice:
- Get rid of credit card debt as soon as possible.
- Keep your credit score high.
- Save up an 8-month emergency fund.
- You should have a 20% down payment for a house before buying one to live in.
- Contribute up to your 401k/403b employer match, then fund a Roth IRA.
- Create both a will and a living revocable trust.
- Get adequate life insurance (term only).
I picked up two pointers that I need to research further involving estate planning. First, she stated that you can pass real estate without probate through a living revocable trust. This can save months of hassle and also can avoids court fees and lawyer fees which can eat up thousands of dollars. Second, you should always check your 401k beneficiaries, as whatever you designate on those forms actually trumps your will.
There was also the oldie-but-goodie why-save-early explanation. Allow me to paraphrase:
If you saved $100 every month starting at age 25, and invested it with normal market returns, at age 65 you would have a million dollars! But you say, I’m 25, who cares? If I wait until 35, that’s only $12,000 I’m not investing. ($100 x 12 months x 10 years)
However, if you indeed started at age 35 saving $100 per month, at age 65 you would only have $300,000. That decade of waiting actually lost you $700,000!!
Of course my question was – what’s “normal market returns”. Doing the backwards math, it’s about 12.08% annualized. Very optimistic, but hey, inflated numbers make the story better. It’s still a good lesson.
Don’t Buy Bond Funds?
Finally, a curious quote from her was that she hates bond mutual funds, and that people should only buy individual bonds. I thought to myself – how many casual investors actually buy individual bonds? Dealing with all the intricacies like call risk, par value, and quality ratings would be way too complicated for her target audience. However, digging a little deeper into her older show transcripts, I see that she actually recommends buying US Treasury Bills or Notes with a maturity of less than 5-7 years. Since these are of the highest quality and are relatively uniform, that definitely made more sense… but she didn’t explain this on the show!