The Suze Orman retirement hedge fund

Suze Orman is a voice of financial reason for American women who struggle with overspending and debt. She’s become the Oprah of personal finance – and a force for good for American consumers – by insisting on a common-sense, brutally honest approach to money.

When discussing investing, Orman has generally encouraged dollar-cost averaging into low cost funds and staying diversified – solid advice for her audience. Felix Salmon described the merits of Ormanian investing in a post in praise of Orman a couple years ago:

Orman says that if you need to see your investments grow, in order to be able to live comfortably in the future or provide a nest-egg for your heirs, then the best way of doing that is to reliably and consistently put a certain amount of money into the stock market every month. It’s good, basic advice: she would never advocate trying to pick stocks, or time the market, or anything idiotic like that.

Of course not, right? Well, Orman now has entered the investment newsletter business, and the advice she’s giving her throngs is far from plain vanilla. Go to her site now, and you’re greeted with a big promo for the Money Navigator, a monthly newsletter going for $63 a year “that tells you how to invest your retirement money! WE MADE IT SIMPLE!”

It seems that Orman partnered with an existing newsletter provider, whose author/portfolio builder Mark Grimaldi also happens to be the lead manager of the Sector Rotation mutual fund (NAVFX). The monthly newsletter offers a number of model portfolios that subscribers are encouraged to follow in their own brokerage accounts. Here’s the first one that you come across in the latest issue – a model portfolio for someone “20 or more years to retirement,” which is likely the majority of Orman’s audience. It’s “recommended for non-401K accounts, including IRAs and Roth IRAs” but it’s identical to the model that’s suggested for this age group for 401Ks via an online broker:

What do we have here? Three straight stock funds – one from Dreyfus and two from American Century – plus a junk bond fund from Janus and Grimaldi’s own Sector Rotation Fund. Here are the current (as of 3/31/11) top ten holdings of that Sector Rotation Fund, according to Morningstar:

The top holding by far is the ProShares Ultra S&P 500 (SSO) – a 2x leveraged ETF. Aside from that, there’s a 2x leveraged short Treasury ETF (TBT) and another inverse Treasury ETF, plus another big chunk of junk bonds in two different ETFs.

Regarding TBT, SymmetricInfo recently explained in great detail how individual investors in this and similar funds – daily-return models that are not designed for a longer-term investment – may be setting themselves up for disaster:

Many investors who are betting on price declines in treasuries are buying levered short ETFs and holding them past one day. When investors do this they are making a highly complex bet on the future path and volatility of the underlying bond index.

The Sector Rotation Fund charged 1.65% in fees in 2010. Orman’s newsletter describes it succinctly as “a good way to add ETFs to the model,” as if ETFs were an asset class or other means of diversification.

Is this the Suze Orman we know and love? Charging for a investment newsletter that encourages her rank-and-file American young woman to put 35% of her retirement savings into junk bonds and a sector rotation fund – run by her newsletter partner – that’s heavily invested in leveraged ETFs?

Et tu, Suze?

Image: David Shankbone

Sources:

“In Praise of Suze Orman” 2/11/09, Felix Salmon, Portfolio.com http://www.portfolio.com/views/blogs/market-movers/2009/02/11/in-praise-of-suze-orman/

The Money Navigator newsletter, May 2011

NAVFX data: Morningstar http://portfolios.morningstar.com/fund/holdings?t=NAVFX&region=USA&culture=en-us

“Investors in levered short treasury ETFs may be setting themselves up for disaster” Symmetric Information 4/27/11 http://symmetricinfo.org/2011/04/are-investors-in-levered-short-treasury-etfs-a-disaster-waiting-to-happen-pt2/

 

  • Ryan Freund

    Suze Orman is a shill, nothing more.

  • http://alephblog.com David Merkel

    Add in that NAVFX hasn’t been doing that well, and that levered funds tend to underperform because they are only meant for daily return replication, and… it does make you wonder. Why do this?

  • Norbert Moneyman

    Suze Q has the vast majority of her wealth in muni bonds. She should follow her own advice, or tell people the truth about where she puts her money.