Suze Orman on Investments
Don't Buy It: "Purchase whole life insurance for a better value."
"Life insurance comes in two basic flavors: term insurance and whole life insurance. With the former, you're buying only insurance; the latter also includes an investing component, which makes it more expensive. The premium cost of a whole life policy is going to be much higher than that of a term policy. This would be justifiable if you were getting a great investment deal. But you really aren't—when you consider all the embedded fees."
Here is my opinion: Insurance should be used to protect assets from loss. It is not a good investment. In my opinion keep insurance and investment separate. Never put a whole life policy or any other insurance policy in a 401(k) or IRA.
Suze has an Idea: “As far as I'm concerned, life insurance should be about life insurance, not investing. Reserve that for your 401(k) or IRA, and invest on your own through low-cost exchange-traded funds (ETFs) or no-load (commission-free) index mutual funds.”
Don't Buy It: "Stocks are too risky; play it safe with bonds."
"It's true that stocks are riskier than bonds and that, recently, bonds have produced better returns than stocks. But "recently" is the past; investing is all about the future. When interest rates are as low as they are today, the future is likely to be less profitable for bond investors; the value of bonds goes down when formerly low rates go up. And with the current interest rate on the ten-year Treasury Note at only 1.5 percent, there's virtually nowhere else for them to go. (To be clear, 1.5 percent isn't normal. Before the financial crisis, the same ten-year security paid an interest rate of around 5 percent.)"
"As for stocks, before you assume they're too much of a roller-coaster ride, don't forget about inflation—another word for the fact that over time, the price of stuff rises, on average about 3 percent a year. You need your long-term investments, like retirement money, to earn at least that average percentage so that when you retire you can afford the same standard of living you have today. Stocks have the best chance of earning inflation-beating returns."
Here is my opinion: I was told by one of my readers that I am biased against all investments except Corporate Bonds. They claim that there are other investment vehicles out there. I told my reader that I do not call my blog, “Bond Investments” for nothing.
Here is where Suze is wrong. I suggest that people with 401(k), 403(b) should invest in individual Corporate bonds with an S&P ratings from B+ to BBB+, if the plan allows purchase of individual bonds. If not, I would invest in bond funds that invest in such securities. For IRA investors, I would only invest in S&P ratings ranging from B+ to BBB+ bonds. Short term money (to be withdrawn in 1 year or less) that you will use in your retirement account should be in cash. This is the "day to day" money that you will live on in the following year. High Yielding Bonds have inflation rate protection as high as 7% or 8%.
Keep in mind, all investment advice is not good investment advice. People who talk about investing in stocks for the long term set aside the historical facts about stock investments. In good investment times stocks do go up faster than inflations. But when the bear market comes, it takes your hard earned money with it. The market does not care if you are to retire 30 years from now or 3 years from now. No bell rings with the market direction changes. The stock market will take your money regardless!
Suze has an Idea: Keep some of your long-term investments (money you won't touch for at least ten years) in stocks. Consider dividend stocks, which both change in value and pay a portion of a company's earnings to the shareholder, typically on a quarterly or annual basis. Your 401(k) or 403(b) probably offers a stock fund that invests in dividend-paying companies, which include most of those in the S&P 500 Index. The dividend yield for that index market is currently about 2 percent—more than the yield of a ten-year treasury note!
In my opinion, stay with individual high yielding bonds with a S&P rating of B+ to BBB+ as much as possible. They give the best return with the best market risk. They give the greatest inflation and interest rate risk protection.
Both Suze and I agree, in general, be wary of investment tips, even from friends or family. Love doesn't mean having to take their financial opinions as gospel.
Suze and I are talking about bad advice and how to recognize some of it.
Don't Buy It: "Purchase whole life insurance for a better value."
"Life insurance comes in two basic flavors: term insurance and whole life insurance. With the former, you're buying only insurance; the latter also includes an investing component, which makes it more expensive. The premium cost of a whole life policy is going to be much higher than that of a term policy. This would be justifiable if you were getting a great investment deal. But you really aren't—when you consider all the embedded fees."
Here is my opinion: Insurance should be used to protect assets from loss. It is not a good investment. In my opinion keep insurance and investment separate. Never put a whole life policy or any other insurance policy in a 401(k) or IRA.
Suze has an Idea: “As far as I'm concerned, life insurance should be about life insurance, not investing. Reserve that for your 401(k) or IRA, and invest on your own through low-cost exchange-traded funds (ETFs) or no-load (commission-free) index mutual funds.”
Don't Buy It: "Stocks are too risky; play it safe with bonds."
"It's true that stocks are riskier than bonds and that, recently, bonds have produced better returns than stocks. But "recently" is the past; investing is all about the future. When interest rates are as low as they are today, the future is likely to be less profitable for bond investors; the value of bonds goes down when formerly low rates go up. And with the current interest rate on the ten-year Treasury Note at only 1.5 percent, there's virtually nowhere else for them to go. (To be clear, 1.5 percent isn't normal. Before the financial crisis, the same ten-year security paid an interest rate of around 5 percent.)"
"As for stocks, before you assume they're too much of a roller-coaster ride, don't forget about inflation—another word for the fact that over time, the price of stuff rises, on average about 3 percent a year. You need your long-term investments, like retirement money, to earn at least that average percentage so that when you retire you can afford the same standard of living you have today. Stocks have the best chance of earning inflation-beating returns."
Here is my opinion: I was told by one of my readers that I am biased against all investments except Corporate Bonds. They claim that there are other investment vehicles out there. I told my reader that I do not call my blog, “Bond Investments” for nothing.
Here is where Suze is wrong. I suggest that people with 401(k), 403(b) should invest in individual Corporate bonds with an S&P ratings from B+ to BBB+, if the plan allows purchase of individual bonds. If not, I would invest in bond funds that invest in such securities. For IRA investors, I would only invest in S&P ratings ranging from B+ to BBB+ bonds. Short term money (to be withdrawn in 1 year or less) that you will use in your retirement account should be in cash. This is the "day to day" money that you will live on in the following year. High Yielding Bonds have inflation rate protection as high as 7% or 8%.
Keep in mind, all investment advice is not good investment advice. People who talk about investing in stocks for the long term set aside the historical facts about stock investments. In good investment times stocks do go up faster than inflations. But when the bear market comes, it takes your hard earned money with it. The market does not care if you are to retire 30 years from now or 3 years from now. No bell rings with the market direction changes. The stock market will take your money regardless!
Suze has an Idea: Keep some of your long-term investments (money you won't touch for at least ten years) in stocks. Consider dividend stocks, which both change in value and pay a portion of a company's earnings to the shareholder, typically on a quarterly or annual basis. Your 401(k) or 403(b) probably offers a stock fund that invests in dividend-paying companies, which include most of those in the S&P 500 Index. The dividend yield for that index market is currently about 2 percent—more than the yield of a ten-year treasury note!
In my opinion, stay with individual high yielding bonds with a S&P rating of B+ to BBB+ as much as possible. They give the best return with the best market risk. They give the greatest inflation and interest rate risk protection.
Both Suze and I agree, in general, be wary of investment tips, even from friends or family. Love doesn't mean having to take their financial opinions as gospel.
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