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Suze Orman Money Matters

Suze Orman, Money Matters

Some Light at End of the Economic Tunnel

by Suze Orman

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Posted on Thursday, April 3, 2008, 12:00AM

I think it's quite possible that things are just a little better than they were a month or two ago.

Justifiable Pessimism

I know that's not what many of you are thinking -- everything seems to be moving in the wrong direction. The price of oil and basic commodities like wheat are way up (any pizza fan knows this), while the value of the dollar, our homes, and our stock investments is falling.

It's so bad that we're worrying whether our money is safe in our banks and brokerage accounts. No wonder a recent survey of consumer expectations about what's on the financial horizon registered a low confidence score not seen since 1973.

I understand that many of you are pessimistic about the future. You have good reason to be. But I think some recent events qualify as at least a glimmer of hope in what has been a very dark start to 2008.

Moving Away from Doom and Gloom

At the start of March I was firmly in the doom-and-gloom camp. And when the S&P 500 lost more than 5 percent in the first two weeks of the month I wasn't feeling any differently. But that's about when the Federal Reserve stepped in multiple times to try to alleviate credit and market pressures.

From opening its discount window to investment banks to lowering the federal funds rate another 0.75 percent, and then playing a central role in brokering JP Morgan's takeover of Bear Stearns, the Fed has been working overtime on damage control. There's no shortage of debate on whether this is the correct role for the Fed -- and the impact on U.S. taxpayers -- but at the same time it's important to look at what's transpired in the wake of all the Fed action: a 5 percent rally from the mid-month lows.

Another encouraging development was the late-March change in capital requirements for Fannie Mae and Freddie Mac, which will help thaw the tundra-frozen mortgage-backed securities market.

Better, but Not Perfect

I'm not suggesting that we're completely out of the woods -- far from it. Even with the mini-rally from its mid-March low, the S&P 500 is still 15 percent below its October 2007 highs. And I envision that we're going to see plenty more stock market volatility through most of this year as the market continues to wring out its excesses.

(I expect it to take even longer for housing to regain its footing in markets that rocketed during the boom. The recent reports of 10 percent price declines over the past year are just a beginning; I wouldn't be surprised if it takes 18 months to 2 years for many regions to truly bottom out.)

But here's the important thing: I think we're a lot closer to the end of the bad times in the stock market than to the beginning. Again, I'm not saying the good times are going to return next week or next month. We're probably looking at next year. But what concerns me is that given the utter lack of consumer confidence reported in recent surveys, you may be toying with the notion of bailing out of the stock market right about now.

Stick to Your Guns

Even if you're thinking "enough is enough, I can't take anymore losses," fight the urge to bail.

One of the biggest risks at this juncture is that you'll lose faith in your long-term investment plan. It's understandable to feel worn down -- and fearful -- amid all the bad news. But I urge you to keep your investing resolve. I've covered this terrain before, but it bears repeating: If your investment horizon is 10 or more years off, just keep doing what you're doing.

Ten years is the minimum here -- not three, not five. There have been many times when the markets have taken more than a decade to work themselves out. Yes, your 401(k) value is falling, but another way to look at it is that now your contributions are buying more shares than they did three months or six months ago. When the markets rebound, the more shares you have the better you'll do.

Is it easy to stick with? Of course not. But it's the right thing to do. And if you bail out today, you may end up making your life a whole lot harder down the line when you realize you don't have enough socked away for retirement.

In Search of Income

One of the toughest challenges right now is generating income. A consequence of the Fed's aggressive rate reduction is that it's pretty much impossible to earn returns on bank deposits that can keep pace with the current 4-percent-plus rate of inflation.

That doesn't mean you should pull your emergency savings out of the bank, though. Yield isn't the most important factor with an emergency cash account -- safety and instant liquidity come first. That said, you should still make sure you're earning as much yield as possible from your bank accounts -- obviously, 2.5 percent is still better that 0.2 percent.

If you need income and have at least eight months of living expenses saved up in a bank savings account (or money market mutual fund), and your finances are in good shape (the mortgage is affordable, there's no lingering credit card or car loan debt, etc.), dividend-paying stocks deserve a look. Again, this is only for long-term investors; money you need in three or five years doesn't belong in the stock market. Never has, never will.

The Deal on Dividends

With that warning out of the way, here's why dividend stocks look interesting to me. First, the income stream from many blue-chip firms is well above what you can earn in the bank today. Dividend stocks also deliver a nice tax advantage: While interest you earn on bank savings is taxed at your income tax rate (a high of 35 percent), the vast majority of stock dividend payouts are currently taxed at just 15 percent. That means keeping more in your pocket after taxes, which is especially helpful right now.

As examples (but not recommendations), DuPont currently generates a solid 3.2 percent dividend payout for its shareholders, while General Electric has a 3.4 percent yield and Pfizer's yield is 6.2 percent. For even higher dividend payouts, the battered financial sector is full of stocks that currently have yields above 5 percent, thanks in large part to plummeting stock prices in the wake of the subprime crisis. For ETF investors, there's the Financial Select Sector SPDR (XLF).

Could there be more downside over the short-term? Without a doubt. But in the meantime you'll pocket the dividend payout, and when the markets do come back -- and eventually they will -- you have the chance for upside stock gains.

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112 Comments

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  • DouglasS - Sunday, April 13, 2008, 11:37AM ET  Report Abuse

    • Overall: 5/5

    As usual the whiners and naysayers have to attack one of the few people who are making sense right now. Dollar cost averaging and high dividends are what it's all about. If you are so dissatisfied with Suze's articles and advice, why do you read it? There are several columnists I can't stand and I just don't read it, maybe you should try that? An average persons 401K is still investing whether the market is up or down, it still comes out of the check and still goes into the market, so Suze is right, KEEP INVESTING. If you can't pay your bills and can't afford to eat, you shouldn't be sitting on your rear reading Suze's column and investing anyways! If your only concern in life is that the world is coming to an end and Suze is wrong, you must live a very sad life. My two boys age 12 and 14 both have custodial accounts and they both are up 3.6% and 6.4% respectively for the year, again age 12 and 14! Following your advice I should stop that nonsense immediately! Simply put, if you are not a fan of Suze's, go away! If you are, follow the advice, invest wisely in respectable companies, dollar cost average, and most of all which most of these losers don't understand, if you can't pay the mortgage or are struggling in any way, don't be investing, just save what you can if at all. Contrary to the whiners, big oil, big government, big banks, big hedge funds, Democrats, Republicans and everyone else they all see as unfit have been around forever and always will be, but people still make money in the stock market. Explain to me how every doom and gloomer out there that writes a column somwhere, still manages to make a recommendation for a stock pick? "The sky is falling, the sky is falling, it's going to get much worse, the bottom is a long way away, the end is near but before I go, I think investors should be looking at the new Hungarian ETF that came out this week"! It's all insanity everywhere and Suze's upbeat approach is a breath of fresh air!! Keep up the good work, and Yahoo, if you are "fixing" the rating, just make it a 5 Star to really irk these bonheads!! Go Suze!

  • phillip - Sunday, April 13, 2008, 9:45AM ET  Report Abuse

    • Overall: 1/5

    as much as I like Orman, she is NOT in the same boat as the rest of us. Between fuel, food, and the rest of the inflationary factors saving anything is not my priority. JUST KEEPING MY HEAD ABOVE WATER FINANCIALLY IS ALL THAT IS ON MY PLATE

  • Browns Fan - Sunday, April 13, 2008, 2:10AM ET  Report Abuse

    • Overall: 1/5

    Easy for her to say. Things are awful right now. People are losing jobs, homes, autos, everything. It is way worse than these millionaire advisors realize.

  • Yahoo! Finance User - Sunday, April 13, 2008, 12:08AM ET  Report Abuse

    • Overall: 1/5

    same poor suze garbage

  • big colby cheese - Saturday, April 12, 2008, 1:55PM ET  Report Abuse

    • Overall: 1/5

    no more train ref. plz. Suze, (yawn) she has the best name in financial advice marketing, but no structure to help the masses... i have several clients who bought the $200 do it your self kit of hers and of course never did the 25 hours of work she shows them how to do to complete the legal, tax and financial planning...get a refferal to a good financial planner, and just save more than you spend, duh

  • Yahoo! Finance User - Friday, April 11, 2008, 5:26PM ET  Report Abuse

    • Overall: 1/5

    Closer to the end of bad times? Since when does a 5 percent decline from a boom time when "Recession" is all over the news mean a bottom? Plus how much more can Bernanke use his magic economy/stock market booster method of lowering interest rates when (duh) the fed's main tool against inflation is raising interest rates? Sounds more like Bernanke's boosting the stock market at the expense of inflation for typical Americans. That spells disaster to me when those Americans cut back buying due to inflation, foreclosures and falling home/net values.

  • Robyn - Friday, April 11, 2008, 7:47AM ET  Report Abuse

    • Overall: 1/5

    Typical Crap, and Yahoo claim it is 3 out of 5 rating, funny if you look at the comments the score is less than 2 out of 5.

  • Yahoo! Finance User - Friday, April 11, 2008, 12:58AM ET  Report Abuse

    • Overall: 4/5

    Uhm...I don't know if anyone has said this already...haven't read all the comments yet... You can't have all your expectations about market stability set on a housing comeback alone. HIstorically in economics, housing and stocks can be "okay" simultaneously, but one usually outperforms the other, and it's a continuous cycle. When housing is up, the stock market has just hit a low; the opposite is also true. The most recent example: After the crash of the internet era in the late 90's/early 2000', housing began to expand. Now that that bubble finally burst, the stock market has to come back and then burst again before housing will. It's a totally normal cycle based on consumer confidence. Plus, the upcoming election only exacerbates the state we're in - any uncertainty always incurs a dismal outlook on the market. But, there are always ways to make money in any market, and more importantly, to SAVE it. Listen to Suzy. She knows what she's talking about. Love you girl!!

  • chris - Thursday, April 10, 2008, 10:47PM ET  Report Abuse

    • Overall: 5/5

    As a financial professional these are words that everyone needs to listen to! She is right in the short-term its hard to stomach but staying true to your budget and long-term savings and investing strategy is the smartest thing you can do!

  • Jose - Thursday, April 10, 2008, 9:52PM ET  Report Abuse

    • Overall: 1/5

    It seems contradictory: "there is some light" then "housing will continue to decline for 18 month to 2 years". Only when housing stabilizes then the light will start to shine.

  • Don - Thursday, April 10, 2008, 4:51PM ET  Report Abuse

    • Overall: 1/5

    Suze Orman has been lost in a dark tunnel for years. Her knowldege of the economy and investing is very limited as demonstrated by this article. Yahoo needs to find someone who can add value here and dump Ms. Orman.

  • Da Big Guy - Thursday, April 10, 2008, 3:45PM ET  Report Abuse

    • Overall: 2/5

    The light I see at tunnel's end has the deafening sound of a locamotive's horn associated with it!

  • Yahoo! Finance User - Thursday, April 10, 2008, 3:12PM ET  Report Abuse

    • Overall: 1/5

    Not to worry, the "Recession that isn't happening" (mass media opinion a few weeks ago) is now "over"...

  • Yahoo! Finance User - Thursday, April 10, 2008, 2:48PM ET  Report Abuse

    • Overall: 3/5

    Although I usually don't put much faith in Suze's advice, I believe she is right here. All you naysayers and doom and gloomers should be realistic and know that real estate has already come down 15 to 20 percent from the peak. People still need a place to live and foreign investors can buy here cheap. Don't forget that the fed is pouring gasoline on the credit markets by lowering rates and allowing financial institutions virtually unlimited liquidity. As to Suze's recommendation to buy dividend stocks, she is right but for the wrong reasons. Her democratic congress will revoke the dividend tax break next year. Suze also publicly implies that about 1 million of her 25 million net worth is in the market. How's that for "conviction" for you assets

  • Yahoo! Finance User - Thursday, April 10, 2008, 12:39PM ET  Report Abuse

    • Overall: 1/5

    Think about things. If the real estate market continues to drop as you forecast, the banks will find themselves in a disasterous situation - they will end up with all these foreclosed properties which are worth less than the loans. Furthermore, the people who foreclosed are set back not for a few months, but probably years. Doesn't sound like a great situation to me. Finally, Greenspan himself declared a recession and other experts are noting a strong decline in the economy until the end of this year or longer. The markets can only be opitimistic for so long.

  • fedex11 - Wednesday, April 9, 2008, 11:35PM ET  Report Abuse

    • Overall: 1/5

    Light!!! end of the tunnel!!!! in my honest opinion we havent begun to see the end to this nightmare.Next week earnings coming C,COF etc. Oil 112.00 and doesnt look to be retracing.All commodities are flying and the feds are going to give the homebuilders a 6 billion dollar tax credit to help the housing crisis. I will continue to watch the newswires because the bad news has been and will in my opinion continue to be forthcoming until the late 3rd qtr to 4th qtr of this year.

  • Yahoo! Finance User - Wednesday, April 9, 2008, 3:20PM ET  Report Abuse

    • Overall: 1/5

    I'm guessing your ratings are higher when the stock markets are going up. Face it, the economy is going to be bad for years. Maybe you should start selling life insurance.

  • David C - Wednesday, April 9, 2008, 1:54PM ET  Report Abuse

    • Overall: 4/5

    Suze, Great article. For individuals that are young, (25 here) we shouldn't be trying to time the market, we should be dollar cost averaging into stocks that will provide assured income from now and for the next 40 years. There's no reason to be rushing back into the market, but for those of us that never left, now is a great time to be buying...and if prices get even lower, I'm buying more...because I have a 20 year time horizon and this whole 'crisis' will hardly be a blip on my radar in 2028. I don't agree with many of your approaches, but this one is spot on. Sincerely, David C.

  • DelJ - Wednesday, April 9, 2008, 12:23PM ET  Report Abuse

    • Overall: 2/5

    Suzie is only partially right. You should ALWAYS move your money from stocks to safer forms of investment when you are reasonably sure the market will move lower for quite some time - why in the heck would you take more loses? Just move it back in when the market seems to recover and you will lose less money. The market will be uncertain for some time to come. Uncertainty translates to more loses. The so called 5% increase Suzie refers to is only a blip caused by daytraders/brokerage houses in a colluded attempt to lure more money back into the market by making it look like a recovery. Then they all short sale and drive the price down. Walstreet has figured out a way to make big bucks - coordinated volatility - by working together - with enough collusion, to drive the market prices up and down they make lots of cash while the long-term investor gets burned. The SEC and the NEW World Disorder Bush Administration is no where to be seen.

  • AndrejB - Wednesday, April 9, 2008, 11:22AM ET  Report Abuse

    • Overall: 2/5

    The light at the end of the tunnel is an oncoming train. Do the opposite of what Suzzie tells you. Get out of the market; then jump back in when it bottoms. If you don't you'll just have average returns with lots of risk by playing the buy and hold strategy. Its better to put your money in a money market fund, bonds, treasuries etc. Friends don't let friends buy and hold. A very foolish strategy.

  • Lee - Wednesday, April 9, 2008, 10:04AM ET  Report Abuse

    • Overall: 1/5

    Suzie - You're dangerous! The market has yet to tank and history tells us it will happen before the economy begins to heal. You should be telling everyone to hold on to their shorts - the big payback is coming!

  • Yahoo! Finance User - Wednesday, April 9, 2008, 9:58AM ET  Report Abuse

    • Overall: 5/5

    Dollar cost averaging and focusing on dividend stocks-- EXCELLENT advice in a down market. I don't agree with her assessment that the recent Fed actions were good (corrections and economic cycles SHOULD be allowed to occur), but the gist of the article is still quite good.

  • Yahoo! Finance User - Wednesday, April 9, 2008, 9:46AM ET  Report Abuse

    • Overall: 1/5

    It is a train coming..... Suse has no idea, nothing useful comes from this lady. It is really sad, there are followers to her nonsense, losing their shirt....

  • me2 - Wednesday, April 9, 2008, 1:08AM ET  Report Abuse

    • Overall: 1/5

    This post by suzi is a bunch of fluff, . She never posts any useful information,

  • Ken - Wednesday, April 9, 2008, 12:12AM ET  Report Abuse

    • Overall: 1/5

    Rubbish

  • Yahoo! Finance User - Wednesday, April 9, 2008, 12:11AM ET  Report Abuse

    • Overall: 1/5

    you don't know hat you are talking about. don't you know the hedge funds control this market and they want the little guy in the market so they con make thier 1200 to2000 trades a day. you better study this probl;em do know what a odc is you better find out. thier a thousand hedge funds using the same formula. they don't know themselves what will happen in the end. piling paper on paper no real val;ue, just like 29 only more sophisticated. good luck on your optimism.

  • Yahoo! Finance User - Tuesday, April 8, 2008, 10:09PM ET  Report Abuse

    • Overall: 1/5

    This article stinks but Suzie is a GILF and her show makes me laugh. People call in and say they have 30K in credit card debt but ask her if they should go on a vacation to Europe.

  • victoria - Tuesday, April 8, 2008, 9:47PM ET  Report Abuse

    • Overall: 5/5

    I think we are listening to way to much bad news that repeats itself every second of the day.Bad news sells at the cost of dividing the american people.We need to remember that we live in a great Nation.We often forget the many choices and opportunities that we have and resources available to the average citizen.Compared to many other places in the world.We need to look at whats really important in life in stead of the bad habit of being negitive all the time.GOD KEEP BLESSING AMERICA.

  • Yahoo! Finance User - Tuesday, April 8, 2008, 9:28PM ET  Report Abuse

    • Overall: 1/5

    we will have to "pay the piper" eventually for our borrowing. healthcare and social security aren't luxuries but they are necessities of life.

  • steve - Tuesday, April 8, 2008, 9:06PM ET  Report Abuse

    • Overall: 1/5

    nice job yahoo for lying about her rating

Showing comments 6-35 of 112<< PreviousNext >>
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