Financial gurus can be too simplistic

Best-selling author Suze Orman has become a veritable guru to women (and many men) who want to get a handle on their finances. Through her books, television shows, and personal appearances, Orman has preached a philosophy of financial responsibility and debt reduction. There is no question that her basic message is helpful and important to the many Americans who find their debts spiraling out of control and their financial futures in doubt. But how good is her investment advice?

It turns out that Suze is reluctant to commit money to the stock market. She told The New York Times recently that she had $25 million of liquid net worth, but only $1 million of that was invested in the stock market. “I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care,” she told the newspaper’s Sunday magazine.

The rest of her money is in top-quality, zero-coupon municipal bonds, she revealed. The bonds are insured so that “even if the city goes under, I get my money,” she said. “I take a little lower interest rate to make sure my bonds are 100% safe and sound.” This almost sounds like the investment strategy of someone who grew up during the 1929 stock market crash and subsequent Great Depression, when many speculative investors who had borrowed to invest were wiped out entirely.

Obviously Orman can afford to avoid risk: her books and appearances create a virtual cash machine. If she maintains a reasonable lifestyle she doesn’t have to worry about inflation eating into her income throughout her lifetime. Unfortunately, many of Orman’s fans can’t do this. They face 25 years or more in retirement with just enough savings to generate required income. If they don’t invest in a portfolio that keeps up with inflation, they run the risk of falling behind. If fans have also followed Orman’s advice to pay off all housing debt as soon as possible, they may also have tied up too much money in low-return real estate that will not add to their ability to produce income when they need it.