If Suze understands bond investing (which I have to assume she does), then she must mean that the only valid reason to own bonds is to buy them at a low price and sell them at a higher price. (As you probably know, bond prices generally rise when interest rates fall.) 

Investing this way is legitimate if that's what you are after and if (this is a very big if) you have some system for knowing when to buy and when to sell. Suze of course was not offering any such system. 

Millions of investors own bonds with an entirely different objective: to stabilize a portfolio that also contains equities. This is what we recommend. If those investors took Suze's advice, they would be defeating their own purpose. 

By allocating a portion of your portfolio to short- and intermediate-term bonds, you have a built-in brake system designed to offset some of the losses experienced in a typical bear market. The only way to do this is to continue to own bonds even when their prices go down.

In fact, with periodic rebalancing (which we also recommend), investors should buy more bonds when their prices are relatively low. 

Unfortunately, Suze does not seem to appreciate this very important reason for owning bond funds. 

Suze On Asset Allocation

Here's a third example. I think Suze is way off the mark in her recommended allocations between equities and fixed income (including bonds). Her recommendations are so conservative that I fear they could lead many investors to fall far short of their goals or even run out of money after they retire.  

Suze has stated publicly that less than 4 percent of her liquid net worth is in the stock market. Why is this? It cannot be that she's totally risk-averse, since last year she was chasing oil and mining sectors. 

I think it is obvious that Suze has a huge income from being a successful author and entertainer. Her liquid net worth has been estimated at more than $25 million. She can easily obtain plenty of spending money for the rest of her life by investing heavily in zero-coupon municipal bonds. 

That's fortunate for her. But I have to wonder how closely she is in touch with the needs of real-world investors who have limited resources.

Keeping Up With Inflation

There are very important reasons that investors need equities in a portfolio even after they are retired. Unless you have acquired or saved more money than you can ever imagine spending, one of the biggest risks you face is eventually running out of money. A portfolio that's exclusively or very heavily weighted to cash and bonds magnifies this risk.

Suze's advice ignores a couple of the obvious facts of life of investing. Over the long run, cash and cash equivalents tend to approximately keep up with inflation, but not to exceed it. This is fine if all you want is a low-risk way to store a given amount of value. But if you are taking more than token withdrawals out of a cash portfolio, the value will inevitably dwindle.

Yet that, in essence, is what Suze seems to be recommending.

For somebody with only a few years left to live, this may work out perfectly. But people typically need to plan for retirement periods of 20 to 40 years. For that, a heavily cash-weighted portfolio doesn't cut it. 

From my point of view, Suze's investment advice has not been good. It does not seem to be based on a good grasp of some important and fundamental concepts. Furthermore, Suze may be out of touch with the needs of most people who are entering retirement. 

My advice to her viewers, listeners and readers is twofold: Appreciate and learn from her "plain English" explanations of financial products and subjects. But don't follow her investment recommendations and advice. And don't follow her example.

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