Score One for Suze Orman

[Milton]

I'm not a fan of Suze Orman, but most of her advice is essentially valid. Her rather abrasive manner is unfortunate, but it's not exactly atypical of television financial personalities.

he told people not to buy bonds when in fact bonds turned out to be good investments.

I don't know any experienced investor, or investment advisor, who can claim a 100% success record.

Reportedly the majority of her own portfolio is in tax-advantaged municipal bonds [see Outing Suze Orman's investment portfolio - MarketWatch].

She insists (no exceptions) that it's a bad idea not to pay off a mortgage if one has the means to do so.

FWIW, I agree with her. Retiring debt is almost always prudent.

 

[cute fuzzy bunny]

Retiring debt is generally a whole lot better and smarter than what most people end up doing with their money. At least theres a positive return...

 

[harley]

FWIW, I agree with her. Retiring debt is almost always prudent.

But a mortgage isn't neccessarily debt. In my case it's diversification, allowing me to not have such a large chunk of money tied up in home equity, which I suspect will grow only at inflation's rate or less for the next 10 or more years. I think her (and Dave's) focus ought to be set specifically on CCs, HELOCs, and other revolving debt vehicles. Most people I know wouldn't save the difference if they had paid off their mortgages, where they might stretch to save AND pay down the mortgage. JMHO.

 

[Milton]

harley, I understand what you're saying (though I take issue with the suggestion that "a mortgage isn't necessarily debt").

Paying off a mortgage ASAP frees up considerable cash, which can be of great assistance in building one's investment portfolio. If some people prefer to [-]waste[/-] spend the money on personal consumption, I guess that's their choice ...

 

[Sarah in SC]

To be fair, I think the vast majority of folks listening to Dave Ramsey (and Suze, I presume) are just trying to get out of regular debt and are a seriously long way away from paying off their houses. He uses baby steps to describe the process, and I think paying off the house comes after investing 10% for retirement and funding college for kids.

 

[cute fuzzy bunny]

We're skirting too close to the pay-off-the-mortgage debate, but basically the vast majority of people are holding mortgages in the 5.5-6.5% range. You cant get a 'savings' rate in that area. Price appreciation is just gravy. Heck, you cant buy a long term CD or get bonds at those rates right now and its possible you wont for years to come. Looking back over the last 10 years or so, paying down your mortgage debt might have been one of your best 'investments'.

Considering that a lot of people feel better about reducing debt than they do about savings, its definitely a better financial ROI than buying a couple of new quads or that Hummer they've always wanted.

 

[Shawn]

I don't know any experienced investor, or investment advisor, who can claim a 100% success record.

Which is why people offering investment advice to the general public should recommend diversification. Orman does not do this. She recommends specific asset classes. Her recommendation not to invest in bonds was bad not because bonds performed well. Her recommendation was bad because it was an effort to chase and beat the market. This is the opposite of what the average person needs to hear.

Yes. I've heard that Orman's own portfolio is concentrated in muni's. This has been a puzzle considering her anti-bond stance.

FWIW, I agree with her. Retiring debt is almost always prudent.

Generally speaking, retiring very low interest debt is not financially prudent. It may be prudent in other ways (e.g., emotionally), but it is not the optimal investment decision. It is equivalent to someone keeping all their money in a bank savings account. It's ultra-safe. It might be appropriate in certain situations (e.g., if one lacks any ability to properly handle money), but Orman's dogmatism that this is the only approach limits her credibility.

 

[cute fuzzy bunny]

This has been a puzzle considering her anti-bond stance.

Really? Outside the fact that she's exorbitantly rich, could probably never spend all of her money in a rational way and has an extremely high amount of taxable income?

 

[Bimmerbill]

I've been listening to DR lately. Been working on reducing my monthly debt (car payments). I certainly understand the difference between good and bad debt. DR thinks all debt is bad. I can live with some, since I can earn better returns with my money.

 

[Notmuchlonger]

If Suze could just learn to cut back on the "girl friend" and "boyfriend" crap.. Damn that is so annoying.

My pet peeve for the day

 

[cute fuzzy bunny]

Maybe they're all her boyfriends and girlfriends?

Hey Bill...I've earned better returns with my money than some debt over the last ten years, but I did it because I was lucky and because I was willing to take a whole lot more risk because I didnt have any debt.

I did a lot better paying off my debt than if I'd had the money sitting in the bog standard 60/40 balanced index. That did 5.82% over the last ten years. My last mortgage was 6.25%.

That excludes the ability to take on a lot more 'risk' with no worries. It also excludes having cut my tax liability to zero or nearly zero for many of those ten years.

 

[Bimmerbill]

Yeah, my mortgage is also 6.25%. I'll probably start paying it down after I retire my other monthly debts, build up a good emergency fund, and fund my 401K and ROTH to the max. Not sure I can fund it all on current salary, but will see what my cash flow is after some debts are paid off. I should start some plan for DDs college too.

If I could pay it off, I would. I'd like to have no monthly debts, but have day care and other junk. I guess those are just living expenses tho.

In my MBA investing and finance classes the Prof always would ask us why some millionaires have mortages. He always said they have better use for their money and mortgages are fairly cheap debt. Of course, I'm nowhere near a millionaire!

 

[cute fuzzy bunny]

I think the reason why it makes sense for most millionaires to hold mortgages is because most of them are still working and have an improving income stream.

 

[Gardnr]

FWIW, I agree with her. Retiring debt is almost always prudent.

You say you agree with her, but you say "almost always" vs. her stance (according to Shawn's post; I don't really know her stance) of pay off mortgage, "no exceptions." That's not really an agreement. Her unequivocal statement vs. your conditional statement. Just saying...

FWIW, I think it's more complicated and thus conditional, but on the other hand it's never really a bad idea to pay off mortgage debt, especially for the majority of people who would just blow it on stuff if they didn't.

 

[Gardnr]

(though I take issue with the suggestion that "a mortgage isn't necessarily debt").

Not the way I'd put it either, but there is a significant difference between debt on "stuff" and low interest, collateralized debt on an appreciating asset like real estate (generally appreciating, that is ; present period excluded in some areas).