How Suze Orman Is Investing Now

Q&A August 22, 2022 at 02:18 PM

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Suze Orman, personal finance superstar, forecasts a probable U.S. recession "sometime in 2023" because "I'm not liking what I'm seeing," she tells ThinkAdvisor in an interview.

The bestselling author and former Prudential and Merrill Lynch financial advisor cites a long list of what she's not liking, including food shortages, baby formula shortages, chip shortages, the Ukraine-Russia war, high inflation and, as she puts it: China, "who doesn't really love us anymore … and is now friendly with Russia."

Helming Suze Orman Worldwide Enterprises, the self-dubbed "America's Matriarch of Money," 71, is certainly well-prepared financially for a recession. But a life-changing experience two years ago has made her rethink her investment portfolio.

In July 2020, she underwent surgery to remove a benign tumor from her spine. Today, she is still coping with neurological issues with an arm.

This health crisis has been largely responsible for Orman starting to shift her focus from investing in individual growth and some speculative stocks to preferreds and dividend-paying stocks, she reveals in the interview. She owns at least 150 individual equities.

"More than growth, I really care now about generating income," she says, then details some of her moves.

She also has I bonds, which protect against inflation. She has invested in them for more than 20 years and recommends them to investors in today's volatile market.

Major surgery didn't stop Orman from promptly returning to work and even embarking on a brand-new venture: co-founding a fintech startup.

"For years, I've been saying that the goal of money is to be secure," she says in the interview.

Her new endeavor fits perfectly with that philosophy: SecureSave, with software created by a veteran financial startup executive and an experienced tech entrepreneur, who asked her to join them, is an employer-sponsored platform allowing employees to open an emergency savings account at no cost.

Whatever sum the worker chooses is automatically deducted from their paycheck, with the employer matching a portion of it. She discusses the program in the interview.

SecureSave is "funded for a long time," Orman notes.

To date, she is a proven media powerhouse: writing bestselling books — most recently "The Ultimate Retirement Guide for 50+"; starring in "The Suze Orman Show" on CNBC, which ran for 13 seasons; and hosting the long-running podcast "Women & Money," aimed at women age 50 and older.

ThinkAdvisor interviewed Orman by phone on Aug. 17. She was speaking from the Bahamas, where she and Kathy "KT" Travis, her wife and managing director of her firm, live on a private island.

"Everybody should have at least eight months to a year of expenses set aside" in case of emergency, Orman stresses.

"If you're seriously rich and your expenses are $200,000 a month, you need $2.5 million set aside somewhere that's your emergency fund," she says.

Here are highlights of our conversation:

THINKADVISOR: Some experts say the U.S. is in a recession; others say one is coming soon. What do you think?

SUZE ORMAN: We'll probably have a recession sometime in 2023. I'm not liking what I'm seeing: I don't like the food shortages. There's now starting to be a tomato shortage. I don't like the baby formula shortage.

I don't like the shortage of chips for producing cars. I don't like that Ukraine and Russia are at war, especially because Ukraine holds some major supplies [for export].

Any other reasons?

We have high food, rent and car inflation. It's still high on oil even though it's come down.

And we have China, who doesn't really love us anymore. What's going to happen with China, who is now friendly with Russia? How do they start to affect what's happening here, which they absolutely could?

But U.S. consumer spending generally remains strong. What do you make of that?

Savings rates are down; credit card debt is starting to go up. People are going into debt.

But they wouldn't have to if they had an emergency savings account. I've been on an emergency savings bonanza forever and a day.

Should people have such an account even when there's no threat of imminent recession?

You always need to have emergency savings because you never know what will happen.

After I had my operation two years ago, if I weren't who I am [financially], there's no way I could have worked for the past two years.

Everybody, recession or not, needs to think what they would do if they were in a car accident or get sick or if inflation goes up so high that their paycheck doesn't cover their expenses.

It's mandatory to have an emergency savings account.

What if financial advisors with high-net-worth clients argue that people at that economic level don't need an emergency savings account?

It doesn't matter who you are and how much money you have. Everybody should have at least eight months to one year of expenses set aside.

If you're seriously wealthy and everything is invested — you have a million in real estate, millions here, millions there — you want to know that you can pay for things without having to sell [investments].

If you're seriously rich and your expenses are $200,000 a month, you need $2.5 million set aside somewhere that's your emergency fund.

Speaking of "seriously rich," do you still have 100-150 individual stocks, as you told me in a February 2020 interview?

I have at least that many now. But I've decided that I'm absolutely going to start to consolidate and shift from growth and certain types of speculative stocks that I've had into preferred stocks and dividend-paying stocks.

Why?

Because of where I am [age-wise], and my health hasn't been great. And more than growth, I really care now about generating income. I don't like to ever go into my principal.

I'm switching from certain things that I've made money on and that are still up, like growth stocks that pay dividends, such as Devon Energy and Pioneer Energy, which are paying double-digit dividends right now and have been up extraordinarily.

Today I bought a preferred at T Bank that's paying me 6.5% interest.

Do you still have municipal bonds? You told me that most of your money was in those.

Yes, I do. But as time goes on, some of the bonds were called, and so I [now] have all this cash.

Munis will come into play again shortly, I think.

In the meantime, I'm taking that money and putting it into preferreds and/or Treasury notes and just waiting.

Broadly, what's a good investment for people to consider right now?

I love I bonds [U.S. savings bond that protects against inflation]. They're for everybody because the minimum is $25, and it goes all the way up to $10,000 — but there's a way to put far more in than $10,000.

If you sign up right now, you get a 9.62% interest rate for six months. Last Nov. 1, the rate was 7.12% for six months. So if you signed up then, you averaged 8.62% for one year — and they're state income-tax free. We'll know on November 1, 2022, what the new rate will be.

Do you own I bonds?

I've been buying them since 2001. Back then, you could put $30,000 into one bond a year; and then they lowered it to $10,000. So now I put in $10,000 in my individual name and $10,000 [each] in the names of some trusts.

And so does KT [Kathy Travis, Orman's wife and MD of Suze Orman Worldwide Enterprises]. And we gift each other $10,000 bonds. There are so many versions.

A Conference Board study just released found that 13% of businesses have conducted layoffs. What are the implications?

Recessions get unemployment happening so people spend less money. How do you get people to stop spending money? Take away their jobs.

Some companies can't raise prices anymore because they've already passed all their increases on to the consumer. So they've started laying people off to reduce expenses and are working people who are still at the companies harder.

That's why when you offer them perks like an emergency savings account, it really helps.

You co-founded a company in 2020 that addresses that. Fintech entrepreneurs Devin Miller and Bassam Saliba created software for an emergency savings account platform and asked you to join them as co-founder of SecureSave.

Who is it aimed at?

People who have credit card debt and nothing in savings. Maybe they're working two jobs and making $50,000 or less. These are people who are just getting by.

How does the program work?

It's employer-sponsored and free to the employees. The worker opens a SecureSave emergency savings account and designates a specific sum they'd like automatically deducted from their paycheck — $10, $25 or whatever amount — and the employer matches a portion of that.

For example, if an employee puts in $25, and the employer puts in $3, that's a 12% return on the employee's money.

If they leave the company, they can take the account with them.

Generally, how much are people saving with the program?

Eighty dollars a month. We have employees who for the first time in their lives have over $1,000.

What has been the chief emergency for taking money out?

We reinforce that this is not a "savings account" — it's an emergency savings account. Very few have taken any money out.

The main reason has been that their car broke down, and they didn't have money to fix it.

In February 2020, you published "The Ultimate Retirement Guide for 50+." What impact did the coronavirus pandemic have on retirement planning?

It didn't have a lot of effect because from 2020-2022, the market was skyrocketing. A lot of people saw their 401(k)s increase dramatically. They were able to take out, say, $100,000 and not have to pay it back for three years.

Should people have an emergency cash account when they're retired?

I recommend a three- to five-year cash reserve once you go into retirement so that if the market crashes and all your money is, say, in stocks or bonds, you don't have to sell stock that's down considerably to live on.

You can use your cash reserve during that time until the market rebounds.

About SecureSave: How do employers benefit from it?

For employees who are making, for example, $35,000 to $45,000 a year, it's the first time in their lives they have some money, and [as a result] they're calmer and more productive.

Studies show that a lot of employees don't put money into their retirement account because they're afraid they won't be able to get it out if something happens.

SecureSave has no limitations: It's not like you have to be a certain age, such as 59½ [to make withdrawals].

Does the platform have any competition?

No, but there will be. They're starting. And don't tell me that if somebody signs up for an emergency savings account [those competitors] aren't going to offer them their other products!

But we're not suckering people into getting an emergency savings account [just] so we can sell them a student loan consolidation or put them in credit cards and make money off them.

Sens. Cory Booker (D-N.J.) and Todd Young (R–Ind.) have submitted a bill, The Emergency Savings Account Act of 2022. What's the thinking behind that?

That employers have to help their employees by building an automatic emergency savings account through their paychecks at work.

We created a website, www.supportemergencysavings.com.

I want everybody to sign the petition to let their congressman or congresswoman know this is something you think should happen.

It's been two years since your surgery. How has your recovery been going?

I still have nerve pain in my left arm. I can't fish anymore, which is a bummer. The nerves in my arm do not like the pressure of my pulling in a fish!

KT and I [recently] went fishing in British Columbia, and everybody [in the boat] was losing fish. It was killing me. So I finally grabbed a pole and pulled in a 10-pound salmon. I really shouldn't have done that.

But I'm not complaining. I can still go out on our boat and steer and find the fish.

Do you and KT eat the fish that you bring in?

We eat every one that we catch. KT cooks. I do not.

Pictured: Suze Orman. (Photo credit: Marc Royce)