Suze Orman Action Plan 2009 - Notes

This is a Summary of Suze Orman's "Action Plan 2009" book.

Note: Suze's book notes and what she says are in regular text, Rob's comments are in italics.

Rob's Note: This book was published in November 2008, at the height of the financial turmoil where everything looked like catastrophe and imminent collapse, and it shows somewhat in the book. Since this book was published, we have already seen 2 bull markets (where stocks go up 20% First: November 20th-Jan. Second: March 9-April) and much less talk of total bank failure, indeed some banks are posting profits (Wells Fargo).

Chapter 1 - The New Reality

• You're scared, angry, confused. 2008 battered us all.
• Massive declines in 401k and IRAs.
• Early predictions that fallout would be limited to subprime lending were wrong
• As the economic outlook grew more troubling, I came to the realization that I had to write this book and get it published quickly. (Yay Suze)
• Or perhaps you are someone who always fi gured you had time to deal with the money issues in your life later. Th e credit crisis has woken you up; later is now—but where do you start? (Buy my book to find out!!)
• This book is your Action Plan for 2009.
• If you do nothing in 2009, you'll be in deeper trouble in 2010.
• We will survive - could be 2014 or 2015 before the economy is back in robust health (just in time for the Social Security Ponzi Scheme Crisis to hit)
• My Friends, it's not about doing what's easy, it's about doing what's right.
• Make the right moves in 2009 to alleviate the stress, fear, and anger you’re fee ling and replace it with the secure sense that you have done what it takes to protect yourself, the money you have worked so hard for, and the ones you love.

Chapter 2 - A Brief History of How We Got Here

• Greed.
• Mortgage lenders did not care if borrowers could pay it back or not.
• Borrowers also didn't care/didn't know
• Freddie and Fannie were created to provide more money to lend to buy homes. Fannie bought loans from banks and packaged them up as securities and resold them. Since Freddie and Fannie took the loans off the banks books, banks then had more money to lend for mortgages.
• Fannie and Freddie lowered their underwriting standards (basically it seems to make loans available to people who could not afford to repay those loans)  and in 2000+ it all took off when interest rates went to the floor.
• Subprime mortgages were packaged into CDOs.
• CDOs were insured with Credit Default Swap insurance.
• Leverage was high (30:1)
• Arms grew from 2% of loans in 2003 to 20% of loans in 2005.
• NINJA loans ruled.
• (Would all this have been avoided if Fannie/Freddie had not laxed their lending guidelines (i.e. kept rules requiring 20% down, verified income, fixed rate loans, etc?). 
• Cracks came in 2006, 2007 when many couldn't afford their mortgages when rates rose some.
• Foreclosures spread. High leverage caused banks to lose big.
• Everyone ignored Proverbs 22:7
• We are in trouble today because everyone was happy to lie, or happy to believe lies that any sane person could see right through.
• It was a wild, drunken party of dishonesty and greed on a national scale.
• The White House called for mortgage regulation early on, but some members of Congress did not allow regulation to gain traction.  This video is not mentioned in the book but it does make me wonder if the crisis could have been averted: )
• You are participating in your own brand of dishonesty because you are living beyond your means.
• There is a way out: The Honest Way Out:
• You have to be willing to get honest about every facet of your financial life

Chapter 3 - Credit

• Banking industry running scared, thinks you can't keep up with payments.
• Banks already reeling from mortgage-default crisis
• National credit card debt is 50% higher now than last economic slowdown of 2000
• Banks clamping down on consumers with high unpaid balances and poor FICO scores
• Best way to insulate oneself is to get out of credit card debt once and for all. You must get out of credit card debt in 2009. This is the number one action to take in 2009.
• If you pay off your credit card balance you can focus on building an emergency fund.
• Action Plan:
• Make it a priority to pay off your credit card balances.
• Read every statement and all correspondence from your credit card company to make sure you are aware of any changes to your account, such as skyrocketing interest rates.
• Work to get your FICO credit score above 720.
• Be very careful where you turn to for help with credit card debt. Debt consolidators are often a very bad deal. The National Foundation for Credit Counseling is a smarter choice.
• Resist the temptation to use retirement savings or a home equity line of credit to pay off credit card debt. (in other words: Don't do it!)
• Lots of credit card bla bla bla, you have to pay your balances, work on good FICO score.
• Your card rate just shot up to 30% - pay it off.
• Alot of improve your FICO Score bla bla bla (Suze really worships at the altar of the FICO)
• Try balance transfer if rate popped up
• Pay off highest interest rate cards first (Dave Ramsey: pay off lowest balance debts first in Debt Snowball)
• Don't use HELOC to pay credit card debt
• Don't borrow on 401k to pay credit card debt
• Credit card settlement: likely only if you have cold cash to pay the reduced amount.
• Again, Suze talks about improving your FICO Score (ad nauseum):
• 35%: Pay bills on time
• 30%: Reduce what you owe (how about owe nothing)
• 15%: Hold on to cards with long credit history
• 10%: Limit credit applications - new credit accounts look bad
• 10%: Have different types of credit (stupid advice - how about have 0 debt)
• Don't fall for come-ons by debt consolidation companies. Go to nfcc.org
• Some talk about collection tactics, laws and rights
• 
  

Chapter 4 - Retirement Investing

• You fear that your losses are so stee p you will never be able to aff ord a comfortable retirement. And you doubt that you will ever be able to recover those losses, especially if you stick with stocks. (NOT ME!)
• But I have to tell you, the biggest risk to your retirement security is giving in to your emotions. When fear and doubt are in control, you may make decisions that fee l “right” for 2009, but they will hurt your long-term retirement strategy. (AMEN SISTER)
• Don't give in to emotional investing, stick with your long-term strategy in 2009 to have the greatest potential for payoff down the line
• If you were near-retired and had bulk of assets in stocks, that was never a good idea; as you got closer to retirement you should have shifted alot out into stable bonds/cash
• Rash actions are not the right actions
• What You Must Do in 2009
• Make sure you have the right mix of stocks and bonds in your retirement accounts given your age.
• Do not make early withdrawals or take loans from retirement accounts to pay for non-retirement expenses.
• Convert an old 401(k) to a rollover IRA so you can invest in the best low-cost funds, ETFs, and bonds.
• If eligible in 2009, consider moving at least a portion of a 401(k) rollover into a Roth IRA. Or wait until 2010 to convert to a Roth, when everyone, regardless of income, will be able to make this move. Just be aware of the tax due at conversion.
• If > 10 years to retirement, resist temptation to stop investing in stocks.
• Hardest part is staying focused on long-term goal, instead of getting swept up in day-to-day
• Even though we are down 40% as of this writing, I believe we have seen the worst of the damage.
• Suze was "mostly" correct - after she finished this book on Nov 19, 2008, which was 1 day before the lowest point in 2008, The markets rebounded 20% then fell again to a new low on March 9, 2009 then rebounded more than 20% to well above when she wrote this.
• If > 10 years to retirement, but you don't want to invest because stocks are low, realize you are buying them on the cheap and will reap great rewards long-term.
• If you want to bail on stocks when market is bad, and buy back in when market is good, that's market timing (BAD).
• All I ask of you in 2009 is to try as hard as you can not to let your emotions completely derail your long-term strategy.
• You will sell late into bear markets and buy late into rallys, thereby buying high and selling low, destroying wealth.
• Don't stop 401k contributing.
• Do stop 401k contributing after get company match if you will pay off credit cards with it.
• If less than 5 years to retire, instead of contributing to 401k, consider paying off mortgage to be debt-free in retirement.
• Don't borrow from 401k for: mortgage, credit card, layoff, etc.
• Rollover a 401k to IRA if not at that company to get more control.
• Convert IRA to Roth in 2010, spread tax to 2011 and 2012
• More Roth IRA Bla bla bla
• ETFs are better than Mutual funds (Suze makes her argument here based soley on expense ratios, which can be true but breaks down at Vanguard where mutual funds are so cheap anyway they come close to ETFs and make it negligible)
• Suze stock allocation: 90% US Index fund, 10% International fund.
• Buy Individual Bonds if you can. (Sometimes too troublesome to be worth it; need large lump sum, usually better to do bond funds)
• Delay your retirement if you need to.
• 15 years from retirement: 70/30 stocks/bonds. 10 years: 50/50.
• 20 years from retirement: 100% stocks.
• If you were planning on retiring in 2009, but now think you can't, you were cutting it too close to retire now anyway.