There has always been bad advice out there about what to do with your money, whether it’s risky investments or paying higher interest rates than you should. And in a digital age where everyone is glued to social media apps, inhaling particle after particle of “expert” information, you may be inundated with all sorts of financial advice — some good, some not so good (or not rightly sized for your needs and wants).
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Suze Orman has become a multimillionaire as a personal finance guru, and she’s quick to call out a piece of money advice that should be avoided. Here’s a look at six bad pieces of money advice that Orman has bluntly struck down.
‘It’s Fine To Hire a Financial Advisor Who Is Not a Fiduciary’
This one may catch you by surprise, if only because you may not know this distinction exists. Not all financial advisors are fiduciary financial advisors. A fiduciary financial advisor has the qualification and commitment to act in your best interest and is overseen by complex and specific rules.
A financial advisor who does not have a fiduciary duty could act against your best interests by, for example, investing your money in a stock that they want to see succeed for their own prosperity.
“Only advisors who operate as fiduciaries are promising to always put the client’s interest first,” Orman wrote in a blog on her site. “If you are interviewing potential financial planners, ask them if they are a fiduciary and if they will put that in writing if you work with them. This should be a super easy request anyone will quickly say yes to.”
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‘You Have To Send Your Kid to an Expensive College in Order for Them To Be Successful’
Like fellow financial expert Dave Ramsey, Orman doesn’t at all disavow a college education, but she does have a scrutinizing eye when she sees people going into student loan debt to secure one. Her philosophy is that college is valuable, but needs to be obtained affordably.
Orman doesn’t want to see parents place too much importance on the best of the best when it comes to education and their children’s needs. She wants them to be practical and act within their budgets so that they’re not putting their own futures at risk in the name of helping their kids.
“All too often, parents fail to strategize when it comes to paying for education and end up getting off the track to retiring comfortably,” Orman wrote in an article posted on Oprah.com. “Ironically, this does kids a major disservice: If you lack sufficient retirement savings down the line, your children are the ones who’ll bear the burden of supporting you.”
‘Owning a Home Is the Best Money Move for Everyone’
Long a pillar of the American Dream, owning a home has become increasingly difficult for Americans. When you really want to be a homeowner but are financially pigeonholed into renting, you may feel like you should do everything possible to afford homeownership, particularly if you deem a home a wise investment. However, if you can’t currently get out of credit card debt or even pay your balance in full, it may not be the right time for you.
A wise investment can quickly become a draining and risky one if you can’t comfortably afford it. In the aforementioned article on Oprah.com, Orman highlighted that homeownership may not be in your best financial interest.
“In some regions of the country, the cost of owning may still be higher than that of renting (to account for total ownership expenses, including property tax and maintenance, my rule of thumb is to add about 30% to the base mortgage amount),” Orman wrote.
Sometimes, it just makes so much more financial sense to rent than own, and don’t ever think you’re a failure on any level if renting is what is best for you and your situation.
‘Whole Life Insurance Is Always Worth It’
When choosing between term or whole life insurance, you may spring for the latter because it includes an investing component, one that sure doesn’t come cheap.
“The premium cost of a whole life policy is going to be much higher than that of a term policy,” Orman said. “This would be justifiable if you were getting a great investment deal. But you really aren’t — when you consider all the embedded fees.”
Orman suggested putting the focus of life insurance on the insurance aspect, without dragging in a pricey investment strategy.
“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,” Orman wrote.
‘Avoid the Risks of Stocks and Stick To Bonds’
The stock market is inherently risky, and some hesitant investors try to steer clear of it altogether. These folks may put most or all of their investment dollars into bonds, which tend to stay rock solid during market fluctuations that drive stocks into a tizzy. Sticking to bonds only and avoiding stocks is bad advice that you shouldn’t follow, in Orman’s opinion.
“Keep some of your long-term investments (money you won’t touch for at least ten years) in stocks,” Orman said. “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!”
‘Aim To Get a Big Tax Refund’
“If you’re getting a tax refund, you are making one of the biggest mistakes out there,” Orman said. Yes, a check from the IRS can help you cover your credit card balance, but it means you aren’t maximizing your paycheck throughout the year.
Orman is aligned with most financial experts here. Getting a tax refund is proof that you’ve mismanaged your income in the year prior. You did so by having too much of your pay withheld for taxes. And what happened to that pay?
It was kept by the government interest-free and is now being returned to you, also interest-free. That money could have been parked in a retirement plan or a HYSA building interest, which is what creates a real and lasting payday.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Suze Orman: Avoid These 6 Bad Pieces of Money Advice
