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Suze Orman has the status of a financial guru. But I have never been able to understand why this self-proclaimed expert has such a following. Imagine a celebrity chef who has given herself food poisoning, or a car expert that couldn’t change a tire.
Orman has said things about money over the years that make me think she’s more sizzle than steak.
First, something recent and, truth be told, the reason I’m finally writing an article I’ve been considering for years.
In an article on CNBC.com called “Expert: Stop wasting money on things that make your life easier,” Orman says, “Stop leasing cars, stop eating out, stop doing the things that’s wasting your money and makes your life easier, because in the long run it’s going to make it harder.”
One might argue that doing things that make your life easier aren’t technically “wasting money,” since they are, after all, making your life easier. But Orman’s point is well taken. Things like eating out, developing a Starbucks habit and paying to have your groceries delivered are splurges that can derail more important pursuits, like saving for the future.
Every personal finance reporter, including yours truly, has been saying similar things for decades. In fact, just a few days ago we published “18 Ways to Save $100 This Week” with the same sort of advice.
What stood out to me in this article with Orman wasn’t the oft-repeated admonishment to be thrifty, it was this:
“There was a time that I was in a relationship with a very, very wealthy person and I wanted to impress this person and I didn’t have money yet, so I went out and I leased a car,” Orman tells CNBC Make It. “I leased a 750iL BMW, and my lease payments were like eight hundred dollars a month.”
There are people who will foolishly trap themselves into inescapable, multi-year contracts they can’t afford to impress themselves or others. Maybe you’ve met one. But someone who calls themselves personal finance “expert”?
I’ve made money mistakes, and said as much in articles like “My 10 Dumbest Money Moves – and How You Can Avoid Them.” But leasing an $800-a-month car I couldn’t afford because I was dating someone “very, very wealthy”? Nope. Not when I was 18, 21, 41 or ever.
If this were the only odd thing escaping Orman’s lips, perhaps I could let it go and continue believing she’s a personal finance whiz. Unfortunately, that’s not the case.
In the beginning
According to Suze’s bio on her website, after graduating from college with a degree in social work, she worked as a waitress in a Berkeley, California, bakery. After six years of waiting tables, she borrowed $50,000 from several customers so she could start a restaurant of her own.
But here’s where it gets weird. Instead of using the loan to open a restaurant, she deposited it with brokerage firm Merrill Lynch, where she proceeded to lose all of it through speculative trading, blaming the losses on a crooked financial adviser. That’s when she decided to become an investment adviser herself and got a job at the very firm that had just ripped her off.
Orman goes on to say that, while working there, she sued Merrill, recovered the money and repaid her would-be investors.
Still, the fact remains she borrowed money and, rather than use it as promised, lost it all gambling instead. Ever done anything like that? Me neither.
I get it: We all love the story of someone who learns from mistakes and becomes successful. But there has to be a limit. If I voluntarily chopped off my own foot, you might grudgingly applaud my participation in a marathon. But wouldn’t you always question my judgment?
Flip flop on stocks
In February 2007, Orman was interviewed by the New York Times Magazine. After saying her net worth was north of $30 million and her preferred investment was municipal bonds, here’s what she said when asked whether she “played” the stock market:
I have a million dollars in the stock market, because if I lose a million dollars, I don’t personally care.
A personal finance expert who doesn’t believe in stocks? Since stocks are one of the only investments capable of beating inflation, that’s strange, and bad, advice. Not only does she essentially compare stocks to gambling by suggesting she could lose it all, she also remarkably says she doesn’t mind losing a million dollars.
Orman later apparently changed her mind about stocks, at least for us little people. Just one year later, in a 2008 interview with CNN Money, she decreed that broad-based index funds — suggested by nearly every money expert (including me) — should take a back seat to much riskier sector funds. Her words:
All the stats say that index funds outperform 80% of managed funds out there. And a few years ago I’d have said just buy Vanguard’s S&P 500 Index Fund or its Total Stock Market index fund. But today I think you have to be more active, and I like exchange-traded funds that let you own particular sectors, like iShares MSCI Emerging Markets, United States Oil Fund or the Metals & Mining SPDR.
A side bet with a sector fund isn’t necessarily dumb. Back in 2016, when oil was trading at less than $30 a barrel, I suggested investing in an oil ETF, and despite a recent decline in oil, I’m still up about 30 percent. But that’s a side bet. I didn’t suggest selling a diversified index fund to do it. I’d never suggest sector funds over a far more diversified S&P 500 fund, for a simple reason: They’re way too risky.
As testimony to the risk of sector investing, here’s how Orman’s advice worked out.
When Suze offered her advice on June 19, 2008, the United States Oil Fund was trading at about $110/share. As I write this, it’s trading for less than $10. The Metals and Mining SPDR was trading at about $95/share. Today it’s about $30. Today the Emerging Markets ETF she suggested is trading at about $42. When she recommended it, it was about $47.
So of the three things she suggested, all are losers, two catastrophically. And how did the S&P Index fund she rejected perform? It was about $124 a share on June 19, 2008. As I write this, it’s about $224 — that’s $100 more a share, or an increase of 80 percent.
Granted, this was nearly 10 years ago. Perhaps Orman reversed course sometime between then and now. But that’s irrelevant. Even if the funds she recommended had been winners, her advice was still laughable.
For simple advice I recently published, check out “Want to Be Rich? Here’s All the Advice You’ll Ever Need, in 10 Simple Sentences.”
Prenups for all
As far back as 2010, Orman was pounding the table on prenuptial agreements. She said repeatedly in print and on air that a prenup is essential for all couples, no matter the circumstances.
She also suggested they’re a wonderful bonding experience. From an article on Oprah.com:
Drawing up a prenuptial agreement together is a sign of incredible trust and financial openness – you’re fooling yourself if you think you can achieve complete intimacy without it.
In a 2011 article called “Should Everyone Have a Prenup?,” I challenged that simplistic advice. From that article:
Hopefully, she’s not trying to say that you can’t achieve intimacy without a prenup. What she presumably means is that if you’re going to share your life with someone, it’s important to share your financial life as well. I agree – who wouldn’t? But sharing financial intimacies with your partner isn’t the same as sharing them with your partner, your lawyer and your partner’s lawyer, then paying thousands of dollars to have them converted into a legally binding document.
Sure, in an ideal world where prenups are free and easy, maybe we should all have one. But in this world, prenups cost a lot. Depending on where you live, whom you hire and your specific situation, you’ll pay $3,000 and up.
Despite the cost, prenups are essential in certain situations, which I spelled out in my article. But it’s ridiculous to insist that spending that kind of money is mandatory for every couple.
Even more ridiculous is suggesting the process is going to be a “sign of incredible trust and financial openness.” That’s like saying your divorce papers are “a wonderful opportunity for financial openness and the ideal time to reflect on the assets the two of you built together.”
Prenups are by definition the opposite of “incredible trust.”
Having gone through both a prenup and a divorce, trust me: Both may be necessary, but neither are a moonlit walk on the beach.