Friday, January 9, 2009


I have been watching Oprah's "Best Life" series this week. Yesterday, she had her financial guru, Suze Orman, on her show. Now, Jeff and I don't particularly follow one personal finance expert over another, but we do tune in and listen to what they advise and analyze how that fits into our financial strategy. I am sure with the state of the market, many are wondering if IRAs, 401(k)s and 529 Savings Plans are still sound investment tools. Here is what Suze had to say, which I found helpful:

On Retirement...
1. Don't panic when the market goes down. Suze says the most important thing you can do in a bad economy is to stay calm—especially if you have at least 10 years until retirement. "There's a big difference between 29 and being 56."

2. Keep investing monthly in your 401(k) or IRA. "Guess what? Your money buys more shares. The more shares you have, the more money you're going to make by the time you are your mother's age."

3. If you need the money within five years, take it out of stock market. Another important idea Suze emphasizes is that any money you will need to spend—on a house, on college tuition—within the next five years must be invested conservatively. "That is not money that belongs in the stock market," she says. "It never has. It never will. The money that's in the stock market is money that you don't need. ... Because [to be in the stock market] you need time on your side so that when something like this has happens and the market goes all the way down, it [has] time to recover."

On Saving for College...
1. You have been putting money into a 529 plan every month since your little one was born. The stock market scares you these days, so you’re thinking you should move your money out of your plan’s stock fund choice and into bonds or cash offered by the 529 plan. Good idea?

Nooo. If you have at least 10 years until you need your money, you have time on your side to ride out volatility in the stock market. You don’t want to stop investing in stocks, or pull out of stocks when you have time on your side; the smart move is to invest more in your 529 plan’s stock fund in 2009. Your money will buy more shares of that fund when prices are low (as they are now). The more shares you accumulate now, the more money you will make when stocks rebound. If your child is five years old, you have time on your side to wait for that rebound.

2. Big losses in your 529 have you so worried you want to quit the 529 and move all the money into a safe bank account.

Do not do this, because it can have significant tax consequences. Money you leave in a 529 that is eventually used to pay for college expenses is free of federal tax and state income tax too. But if you pull the money out, you can be hit with a 10 % penalty tax on any earnings on that account. If you feel you simply can’t stand to remain invested in stocks, then shift the money into a stable-value account within the 529.


patty said...

This is sound advice for Suze. Everyone needs to remember not to panic. And it's true, it's better when you're not too close to retirement!

Sparkiechic said...

I've been watching it too :) Very good advice yesterday I thought!

Angie said...

Yes, I really like Suze Orman and she teaches along the same lines as Dave Ramsey (my main man). I feel extremely lucky to be the age I am in this economy because having the chance to buy stocks so cheap in my retirement fund could turn out into a lot of money for us.