Don’t follow this financial advice

And when I finally got home for dinner last night after a long day, my wife hands me an article that she found on Yahoo Finance and says “I thought you might be interested in this, but you might want to have a drink and some dinner first”. Of course, after that comment, I had to take a quick peek at the article, and by just the title alone I knew she was right about the drink. It read “Suze Orman says ‘Don’t Follow This Financial Advice’” It then listed three things of things to avoid:

1) Permanent Life Insurance as an investment

2) Immediate Annuities

3) Bond Mutual Funds

The article then went on to bash financial advisors saying that “there is no shortage of BAD financial advice these days, and these three things are ‘the worst’.” Now in all fairness, there is some truth in that statement. There is NO shortage of BAD financial advice these days, and most of it comes from people like Suze Orman and Dave Ramsey, who are in the business of making millions, not as investment advisors but as book sellers and motivational speakers.

So today, just because you deserve the truth, I’m going to cover Suze Orman’s “things to avoid” list and teach you why you should do the exact opposite of what she recommends. Let’s talk about your money and specifically let’s challenge some of the terrible advice that is sprayed all over the internet from people who are in the business of selling books and have no business helping you protect your family fortune.

So according to Suze Ormon, in her recent interview with Yahoo finance, you should avoid three things as an investor. Today I’m only going to cover 2 of them, but maybe I will cover number 3 next week. So let’s talk about what Suze calls “one of the worst investments you will ever make in your life”.

1) Using Permanent Life Insurance as an investment: Now this criticism is an oldie but goodie that’s been around for a long time. You’ve probably heard the advice “buy term and invest the difference” which is exactly what Suze Ormon recommends. There are several problems with this advice: First, for those people who do buy term, it’s proven that they rarely invest the difference, effectively ending up with some cheap temporary life insurance and little to no investments to show for it years later. Second, most people do not have the time, training or temperament to successfully invest in the most volatile financial markets in history where over 70% of daily trades are not human…meaning done by super computers. And here’s the biggy…according to multiple studies, approximately 3% of term insurance ever pays beneficiaries a death benefit! That means that 97% of all term insurance expires worthless and never pays family members, which means that 100% of the premium was wasted. Not sounding so cheap any more right? And why is that you might ask? Because term insurance is only cheap when you are young, and it is only priced for a fixed period call a term. When that period is over, if you’re still alive and say 20 years older, your premium to continue the coverage will sky rocket sometimes 5 or 6 folding from the original. So most people find it impossible to renew. On the other hand, if you use permanent life insurance, your premiums will be much higher, but you will accumulate cash value in the policy which can be guaranteed depending on the type of insurance you use, your death benefit will be there as long as you pay your premium and you will accumulate wealth inside of what is considered the safest industry for over 200 years…not banks, not wall street but the insurance industry.

2) Alright let’s jump to the last one on Suze’s top 3 mistake list…Buying Bond Mutual Funds: So according to Suze, because interest rates might go up, you should NEVER buy a bond fund because bond prices fall when rates rise. Again, the concept of rates rising and prices falling has nothing to do with how you buy your bonds. Whether you choose a well run bond fund with a professional manager at the helm with a good record of managing risk or you buy individual bonds with the help of a professional advisor, the mutual fund vehicle is just another way to buy bonds. Personally, I buy individual bonds for my clients because I know how to build a portfolio and ladder maturities and control things like duration and credit risk. Everybody can’t do that and for those people, a well run bond fund could be a solution for their fixed income allocation.

All I am saying is that you need to be cautious about where you get your advice from and no one type of strategy is good or bad for everyone on the planet. You need to have a professional in your life that will tailor an approach to your wants and needs and to your level of risk tolerance. One size does not fit all when it comes to investing.

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Information presented in this blog post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for all readers. A professional adviser should be consulted before implementing any of the strategies presented.
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