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Suze Orman Money Matters

Suze Orman, Money Matters

Fighting the Financial Fear Factor

by Suze Orman

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Posted on Thursday, February 21, 2008, 12:00AM

Declines of more than 10 percent in the major stock market indexes over the past few months, along with the growing expectation of a recession, have set off a massive investor call to action.

By action I mean the urge to flee stocks for the apparent safety of bonds or cash. For the vast majority of investors, that move can be a costly mistake.

There Will Be a Test

At the same time that many people are overreacting to the recent market volatility, they're underreacting to other facets of their financial lives. The same fear that causes someone to bail out of a stock fund when the markets slip causes them to not act when faced with bills they don't think they can pay.

Be it a credit card statement or an impending mortgage reset, the tendency is to do nothing, and that inaction ends up costing a ton in the long run. Fear is natural, but there's a right way and a wrong way to handle fear when it comes to finances. Knowing when to act and when not to act is one of the keys to financial security.

Right now, we're all being put to the test. The choices you make in today's volatile market environment and slowing economy are going to have a huge impact on your financial health years from now.

When to Stay Put

First things first: Those of you who are active day traders, stop reading right now. My advice is not, and never has been, geared to you. I'm concerned with the millions of Americans who invest for the long term via their 401(k) and IRAs, and are scared by the recent declines in their portfolios.

For these long-term investors, the best advice is to do nothing. Yes, nothing. If you have a well-diversified portfolio that's focused on building value over the next few decades, it doesn't make sense to overreact to a few months of volatility and bail out on stocks. It's no fun watching your portfolio fall, but you need to focus on a bigger problem: If you put all your money into super-low-risk investments such as money markets or stable value funds, you increase your risk, too -- the risk that your portfolio won't grow enough over time to build a hefty retirement account.

I know what you're thinking: When the market rebounds, I'll jump back in and ride the next bull run. Nice theory. But the truth is that it's ridiculously hard to be a consistently correct market timer. What tends to happen instead is that we react too late on both sides of the market by bailing out after our portfolios have already taken a sizable hit, then getting back in after we've seen the markets rebound -- in other words, well after the bull has started its run. That's a losing strategy.

Fear and Greed

If your investment time horizon is 10, 20, or 30 years, stay invested in your stock funds and ETFs. Over time (meaning decades, not weeks), stocks have consistently outperformed other types of investments. That includes periods when the stock markets fall. Doing nothing is going to net you better long-term results than doing something.

In fact, right now, sticking with your automatic 401(k) investments is a great move. Because prices are lower, your money buys more shares. When the markets rebound, the more shares you have the more money you make.

If you need some encouragement to stay the course, how about a little Warren Buffett wisdom? As Buffett has said, "Try to be fearful when others are greedy and greedy when others are fearful." Right now, there's a whole lot of fear. Keep adding to your stock investments rather than bailing out and you'll position yourself well for the next upturn.

When to Get Moving

As quick as people are to react when their investments start to slide, they do just the opposite when dealing with debt. When faced with bad news about debt, the typical reaction is to freeze and want to do nothing.

I'm talking about ignoring your credit card bill because you know you can't afford to pay it off, or ignoring a big interest rate jump on your card balance. Or, when you know your mortgage rate is going to reset, and you know it's going to be too expensive to handle, you don't get proactive before the lender starts breathing down your neck.

Inaction is inexcusable when dealing with cash flow issues. You need to do something right away -- the longer you let the situation fester, the worse off your finances will be. Inaction just leads to big problems down the line.

Now, Not Later

If your problem is credit card debt, the best first step is to simply pay the minimum amount due on time. By paying just the minimum, you'll keep the credit card company off your back and have a good chance of not hurting your credit score. That's important, because the next step is to see how you can reduce your credit card costs.

If you have a record of on-time payments and a FICO credit score of 700 or so, you've got a good shot at getting your interest rate reduced simply by calling up the card issuer and asking. If that doesn't work, your next step is to shop around for a balance transfer to a card that gives you a better rate deal; just be sure you understand the transfer costs. You can learn more about transfers and better card management here.

Those of you facing an unaffordable mortgage reset also need to take action; sitting tight is just not going to cut it. I'm not going to sugarcoat this -- the odds of your lender working out some sort of deal with you aren't exactly great, but to have any chance you need to be proactive. That means contacting the lender to talk about any restructuring options long before the reset hits. If you wait until your situation is dire -- that is, when the reset kicks in and you fall behind on your payments -- the lender has lost a whole lot of motivation to work with you.

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69 Comments

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  • James - Thursday, February 28, 2008, 6:58PM ET  Report Abuse

    • Overall: 4/5

    Suze is correct hold long term you cant time market. If you are so adept you would be advising her.

  • sheehs1 - Thursday, February 28, 2008, 5:31PM ET  Report Abuse

    • Overall: 1/5

    I hate to say it but I think this advice Suzi is blantantly irresponsible especially considering the fact that our economy has not faced a crisis such as this since the last Depression. No one...not even you ...can safely say what will happen. The question then becomes: Do you want to risk losing anywhere from 20% to 50% of your portfolio?. Those that rode the tech bust down know what I am talking about. The Nasdaq never has come back and today it is still currently at a level that is 50% lower than it was before that bust...and we are how many years out....five, six or seven years???? Point is...it has not come back. The advice of others here, including Mr. Wisdom is appropriately cautious. After having watched this crisis unfold the last year and a half, reading everything I can get my hands on....to include research on all economic indicators, the Financial Times, the Wall Street Journal and Noiuriel Robinis' (NYU economist) web site at www.rgemonitor.com, I am no longer invested in stocks. The truth of the matter is equity investing is a financial endeavor.....that rest on the strength of the financial industry and the economy. So..tell us again why we should stay invested in a near term loosing proposition....when the possible long term doesn't look good either. One doesn't really know what ones risk tolerance is....until one starts to see their stock portfolio decreasing 10%...to 20%...to 50%. The instituions and individuals who made millions if not billions on this boom should be hung out to dry. They brought our country down. In the very least, they have created a very risky economy for the rest of us .....who didn't make squat in comparison. I hope the government ...holds inquest and hearings and takes them to task. I won't hold my breath.

  • Yahoo! Finance User - Thursday, February 28, 2008, 4:39PM ET  Report Abuse

    • Overall: 3/5

    Okay, let's not be sheep. The reason why our country is in financial ruin right now is because people are like sheep. Everyone did what everyone else was doing. In other words, my neighbor Joe decided to refinance all the equity out of his house to buy his boat, jet ski's and investment property, assuming that prices would continue to rise. Because everyone was saying they would. If you recall, back in 2000, all the stock brokers were pushing technology stocks. Saying that you should put all your eggs into technology. Then when things got bad, investors were encouraging people to keep their money in the market. There were many I knew that left their 401K untouched. I rolled mine over into an interest account. They lost their shorts. Today investors are encouraging you to keep your money in the market. Okay, let's be sheep again. Let's listen to what others say we should do. The fact is that our economy has never been faced with a tragedy such as this one. There was never a time in recent history where the banks have screwed up this bad in our country. The only country that has ever been faced with similar circumstances is Japan. They went around purchasing everything they could get their hands on in the late 90's and then suddenly the bottom fell out of the market..causing their banks to crash and their economy to go into a dead paper weight for about 10 years. Our banks are much worse off than Japan ever was. Our debt is far greater than Japan or any other nations ever was. Common since would be to get out of the market, get rid of all your debts including credit card debt, auto loans, and bloated mortgage payments...and then buckle in and be prepared for a wild roller coaster ride. The bottom of the market is in the horizon. But it's not going to be a gradual fall. It's going to be a sudden crash similar to the great depression. Something no one will ever expect. In fact, those who read this and roll their eyes should re-think their ignorance and weigh out the facts. Pay attention to the headlines. Rising energy costs (Gas over historical highs from the early 80's), lowest currency rate, inflation, layoffs, slowest quarterly GDP in a decade, a housing slump, possible bank closures, hardly any injections of cash flow from consumers. I believe anyone who remains in the market will be part of the entire herd of sheep. The ones who get out early will be the ones who's losses will be less felt.

  • Gloria - Thursday, February 28, 2008, 12:10PM ET  Report Abuse

    • Overall: 3/5

    I never miss a Suze Orman show, even tho I feel a lot of the shows are repetitive, such as advice of credits cards etc. Many of you have said, it's just common sense, but many don't have a clue about their finances, nor do they even think about the future. At least Suze is a wake up call for those people, IF they even bother to watch the show. I work with several co-workers and we have many financial conversations. One gal has over 50K in CC debt and feels there is no danger. She has 3 children, and said, she just worries about putting food on the table, and not after that because she would be sick over it. Others are going to Broadway shows, even tho they dread when taxes are due. But of course, neither of these people watch Suze Orman show, and when I talk about it, they think I worry too much about money!! I hope in a few years when I retire, they will wonder why that day will never come for them. I know you have to have some enjoyment out of life..and it is hard to know that balance. I think I do get a little cheap at times, but at my age, with retirement just a few years away, I will gladly give up a movie, and watch a Lifetime or Hallmark movie, if it means leaving work at age 66.

  • Yahoo! Finance User - Thursday, February 28, 2008, 12:00PM ET  Report Abuse

    • Overall: 3/5

    While I don't take much advice from Suze, I certainly wouldn't take it from "Mr. Wisdom" down below. The fact that so many people do make bad timing decisions and so many don't have portfolios that reflect their true volatility tolerances stands to reason that most people should work with someone that can help them. That is something a book or an article can't do.

  • Mr. Wisdom - Thursday, February 28, 2008, 2:47AM ET  Report Abuse

    • Overall: 1/5

    Suze, you are neither qualified or aqeduately knowledgable to give even generic advice regarding the stock market. This period is an especially bad one to fork out the same old clique "think long-term." In the long-term we die. You have no idea what the US is facing, nor do 99.99% of investment pros. I do. I'm an expert. You are not. CASH IS GOOD. VERY GOOD. Staying in stocks is bad. VERY BAD. People, if you want to do well take my advice....buy oil trusts (most pay 12-15% dividend yields), buy gold (don't load up too much), get foreign currencies (via managed fund), TIPS, and always keep cash to buy in for the next market collapse. Suze, stick to telling people to save. You're clueless and you provide no real value.

  • Yahoo! Finance User - Wednesday, February 27, 2008, 5:02PM ET  Report Abuse

    • Overall: 4/5

    I am not a big Suze fan, however the generic advise she gives is good for folks that only know the basics to investing. Some of the comments on here will lead people to make some dumb mistakes. The average Joe usually sells when the shouldn't and then buys in when it is to late. All she is saying is don't react. Keep buying in a diversified porfolio in good and bad markets. Dollar cost averaging.

  • Yahoo! Finance User - Tuesday, February 26, 2008, 11:31PM ET  Report Abuse

    • Overall: 1/5

    The crash is coming so get out while you can. Remember Enron when the kept telling you everything is ok while they were cashing out.

  • Yahoo! Finance User - Tuesday, February 26, 2008, 9:19PM ET  Report Abuse

    • Overall: 2/5

    There isn't much advice for the individual, generic information. This information sounds recycled.

  • Yahoo! Finance User - Tuesday, February 26, 2008, 3:50PM ET  Report Abuse

    • Overall: 1/5

    This article offers nothing new to readers. It certainly sounds like preaching to an adult who has zero financial idea and needs a big mama tell him what to do.

  • MrCapGain - Tuesday, February 26, 2008, 2:09PM ET  Report Abuse

    • Overall: 1/5

    Do as I say not what I do ... If I remember correctly, Suzy has most of her investments in safer securities like bonds, etc ... why should everyone else be in equities .... Anyway, she is not speaking to me as I trade frequently (not daytrading though but do not mind buying and selling during the same day if the stock hits apporpriate buy or sell point). The only way you can get rich (other than lottery) is not by working yourself to death but making appropriate investments. Yes, you can. You can time the market - maybe not exactly but you can participate in the up runs and protect your investments during downturn. But you have to work hard to study the market and technicals.

  • Da Big Guy - Tuesday, February 26, 2008, 11:45AM ET  Report Abuse

    • Overall: 2/5

    Buy Low! Act, Don't React! Buy Bonds! The only thing to fear is fear itself! Thanks for the pep talk FDR..I mean Suze!

  • Yahoo! Finance User - Tuesday, February 26, 2008, 10:15AM ET  Report Abuse

    • Overall: 3/5

    Don't buy stocks now. Look, they've gone down in price. You need to go buy something thats gone way way up in price lately, like gold. This will help maximize your losses in the long run!

  • A Publius in training - Tuesday, February 26, 2008, 10:11AM ET  Report Abuse

    • Overall: 5/5

    Sound advice for the average person. Thanks for the article, now I can pass it on to my friends who maybe didn't quite believe me when I said similar things.

  • Amelia - Tuesday, February 26, 2008, 12:16AM ET  Report Abuse

    • Overall: 2/5

    This article makes no mention/offers no advice for those already retired who may still have a sizeable stock portfolio, but have other assets on addition to stocks, on how to react to the recent market downturn.

  • hunter - Monday, February 25, 2008, 9:23PM ET  Report Abuse

    • Overall: 1/5

    this is tired advice that no longer works. our financial system is in hock, the dollar continues to be devalued and is a dangerous policy in the name of dealing with a huge trade deficit. make sure you have 15-20% of your savings in gold and silver coins, as hard currency will be the only reliable inflation fighter in the long run. as long as our monetary policy continues to devalue our currencies worth, that is your best strategy.

  • RobertM - Monday, February 25, 2008, 9:09PM ET  Report Abuse

    • Overall: 3/5

    Fear is good in that it should keep us from doing stupid things. As far as investing, staying the course and holding stocks is a fine strategy if you are comfortable about the long term future of the US economy. My fear is growing as the dollar is sinking, which is telling us something. The question is where to invest in an environment of continued currency devaluation and government borrowing.

  • Michael Tsen - Monday, February 25, 2008, 6:28PM ET  Report Abuse

    • Overall: 5/5

    No doubt to continue put money to 401K though you want make sure your money doesn't go to buy more shares of the company you work for. I, too, taking bargain now. With tax return back, I look for companies that pay dividends, part of S & P 500, and no more than $2 to $3 at 52 weeks low prices. Going to buy BMY, CS, BUD, DLM, SWY.

  • Yahoo! Finance User - Monday, February 25, 2008, 6:23PM ET  Report Abuse

    • Overall: 5/5

    Suze Orman usually offers rock solid advice. When some obnoxious New York Times reporter pressed her on her net worth, Orman stated "One journalist estimated my liquid net worth at 25M. That's pretty close. My houses are worth another 7M." Orman stated the 25M is in AAA rated municipal bonds and some in zero coupon bonds. She also stated she had 1M in the stock market. http://www.nytimes.com/2007/02/25/magazine/25wwlnq4.t.html?ex=1330405200&en=48468686702a853c&ei=5124&partner=permalink&exprod=permalink

  • Yahoo! Finance User - Monday, February 25, 2008, 5:28PM ET  Report Abuse

    • Overall: 1/5

    This is the same stupid kind of article that Ben Stein wrote about 6 months ago before turning tail. Suze is a loser pushing a free ebook for publicity. Her recipes for sucksis are about as original as someone who copied them right out of a Betty Crocker Cook Book. This stuff is so worn out it has no merit in this column. I seriously only come to the Experts to read how stupid they are and to see what funny stuff you guys write. Have any of these people ever had real jobs?

  • Yahoo! Finance User - Monday, February 25, 2008, 4:55PM ET  Report Abuse

    • Overall: 2/5

    Americans love to live in extremes. On the one extreme, there are people who instead of adjusting their life styles to their income levels splurge more on consumerism and as a result get into unwanted debt. To supplement the irresponsibilities of the households there is a fiscally irresponsible government that cuts taxes and increases spending simultaneously to accumulate more debt. The government now needs to borrow to finance tax rebates essentially for supporting reckless consumerism of households. And the other extreme belongs to the advisors like Suzy Orman who earn hundreds of thousands selling books that offer common sense advice like pay down debt. Since neither the households nor the government will discipline themselves to spend responsibly and borrow less, the advisors will continue to live well selling the same common sense advice. People will buy a Suze Orman book for financial advice, but they will borrow on credit card to pay for the book purchased.

  • Kim - Monday, February 25, 2008, 4:42PM ET  Report Abuse

    • Overall: 5/5

    I think this is excellent advice. Please read "The Dick Davis Dividend" by Dick Davis on how to invest long term.

  • John - Monday, February 25, 2008, 4:33PM ET  Report Abuse

    • Overall: 5/5

    She is very worth reading and watching, but she is not always right. Still, following her advice is a very good strategy unless you are into personal finance "arbitrage." You CAN do better by breaking some of her rules IF you really understand them, but it takes more time, thought and risk than most people would want to expend. However if money is really tight you may want to, for example, borrow from a 401k if your job is safe and you feel the market is frothy (expensive), rather than take out some other loan. I did that just before this last correction at market highs and lowered my portfolio risk. I did pay double tax on the interest, but I would have paid tax on interest on any other loan too, so that is just silly math on her part. I know she is really more focussed on keeping people in the market during bad times and protecting people from the penalties you get when you lose your job before you repay a 401k loan, so she has the right idea, but so she is not perfect... she is still the best! I just repaid the 401k loan and bought back into the market at a 15% discount from where I was using a 2% credit card, since moving debt to my 401k raised my FICO score. So I lowered my debt interest rate by 15% of the principal AND saved myself from a 15% loss in the borrowed part of my retirement fund. I won't even count the interest I paid myself, but 75% of that helped me too, since I had to pay someone interest. Still, it was a very scary series of moves to make. I won't bother telling you that I borrowed all this money to fund Roth accounts while living in tax-free Texas and then used the contributions as an emergency fund. Eventually, I will pull out the Roth contributions to retire the debt and I will have a nice tax-free nest egg of profits sitting in Roth accounts, none of which will be my original money, just gains, and dividends. I have 20k of pure gains so far. How did I figure this strategy out? By watching Suze! The big downside is that it is impossible to keep track of cash flow with all my moves, so I have a very hard time setting a budget, even though I really work hard at that. I buy everything used and that means that my maintenance is unpredictable. So I would get a budget and carreer in place before testing Suze's rules. It is taking years to implement this plan and now is not a good time to start it, since the market is cheap. I used the 20k so far to put myself through grad school, so if I don't pay it back soon, I miss out on the tax benefit of a school loan, but I found other loopholes that were almost as good. I guess if I paid myself by the hour for my time, I just about broke even, but I learned a lot and I think I lowered my risk.

  • Douglas M - Monday, February 25, 2008, 4:29PM ET  Report Abuse

    • Overall: 1/5

    Wow, what a concept..change to a credit card that offers a better interest rate. Unfortunately, the morons that don't know this have not discovered the internet either.

  • Andy - Monday, February 25, 2008, 4:14PM ET  Report Abuse

    • Overall: 3/5

    Value Cost Averaging beats Dollar Cost Averaging in every example I've ran it through. It makes more when the market is good and loses less when the market is bad. If you're good with Excel you can make spreadsheets to do the math for you... easy as pie

  • D&T - Monday, February 25, 2008, 4:10PM ET  Report Abuse

    • Overall: 1/5

    Does she even know what is going on? Has she been paying attention to how weak the dollar is compare to all other major currencies? Does she know the general public is the last one to get the real news? She just wants to sell her books!

  • DanR - Monday, February 25, 2008, 3:28PM ET  Report Abuse

    • Overall: 5/5

    susie is a solid adviser. she likes Dollar Cost Averaging, and so do I. DCA is not about buying low, selling high -- this is impossible since it implies timing the market. Rather, DCA is about buying more when low, buying less when high, i.e., buying ALWAYS since we believe companies in the stock market have future cash flows which will grow both with inflation and out of natural business expansion. Remember, the market goes up over time, not down.

  • Yahoo! Finance User - Monday, February 25, 2008, 2:52PM ET  Report Abuse

    • Overall: 4/5

    The infos she has provided has now proven their worth....after following each of her advice, it is now time to see each step survive the bear market. No need to panic & worry but instead watch her advice work.... This is the time where I look back and say...it pays to listen and justify the knowledge attained!

  • norfolk n chance - Monday, February 25, 2008, 2:49PM ET  Report Abuse

    • Overall: 2/5

    Every time I read one of these articles someone is in there chanting the usual mantra 'Yeah!! Buy Low Sell High!!!' They always want to follow the 'advice' and keep buying now because prices are 'low'. Unfortunately they never sell because nobody ever told them when prices were 'high'!! What if prices now are still 'very high'??

  • Peter - Monday, February 25, 2008, 2:46PM ET  Report Abuse

    • Overall: 1/5

    There are Bulls, there are Bears and then there are Pigs. Don't be a PIG and get slaughtered like you did in 2000-2003. My uncle is a long term investor and gets out every time for these secular bears without ever looking at a computer. This is not a normal business cycle; this came about because of massive fraud and deliberate underpricing of risk, this undermines the credit markets and in America where credit IS the economy who is anyone say where the bottom is on this? This recent bounce is an exceellent place for long term stock market Bulls to remove risk. Wait untill the 200 day moving average turns up again after a significant purging not only price wise but time wise (AT LEAST 6 to 18 months). Additionally, I'm looking for widespread convictions in the MBS industry and cars that get 100 mpg for me to get bullish again.

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