Suze Orman says: ‘It’s better to do nothing than to do something you don’t understand’ – people are investing in this product they don’t understand

By | April 3, 2024

Renowned financial advisor Suze Orman shared an essential insight on her podcast: the critical importance of fully understanding financial products before investing.

“It’s better to do nothing than to do something you don’t understand,” she said.

Orman raises concerns about a trend where individuals invest in complex life insurance policies – such as whole, universal and variable life insurance – without fully understanding the consequences. She has noticed an increase in listener questions about life insurance policies, which points to a broader lack of understanding of these financial products.

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Orman explains that life insurance is generally aimed at younger people who have not yet built up substantial assets and have dependents. However, the need for such insurance decreases as your financial situation improves as you age. Nevertheless, many are seduced by the attractive but misleading idea of ​​benefiting from an investment and life insurance at the same time.

Orman uses detailed examples to demonstrate the downsides of these investments, including cases where people were misled about the returns they could expect. She notes that insurance agents’ optimistic forecasts often do not match guaranteed outcomes, which poses a risk of financial loss.

“You’re told by an insurance agent that you can have your cake and eat it too,” she said. ‘You can’t. It’s physically impossible to have your cake and eat it too.

Americans buy life insurance for reasons such as funeral expenses, wealth transfers, income replacement, supplementing retirement income and covering mortgage payments. These factors emphasize the need to choose a policy that fits your financial strategy. Because the cost of comparable policies can vary by up to 39.6% between companies, and women generally pay less than men, it’s crucial to shop for the best rate.

The challenge of making informed decisions is further complicated by a general lack of insurance knowledge. A study on the impact of insurance literacy on personal insurance decisions found that insurance literacy directly influences consumers’ purchasing decisions, mediated by factors such as trust, perceived benefits, and attitudes toward insurance. This finding suggests that increasing insurance knowledge could lead to better financial outcomes for consumers.

Popular: How to turn a $100,000 investment into $1 million – and a millionaire retire.

However, a gap remains in the public’s understanding of insurance products, with financial literacy not necessarily translating into insurance literacy. This gap indicates a need for more specialized education and resources to help consumers choose from complex insurance options.

At the heart of Orman’s advice is a powerful message: Don’t be fooled by headlines or friends’ get-rich-quick stories when it comes to your finances. This is especially true when it comes to complex financial products and ever-changing markets.

Take cryptocurrency for example. While it may be tempting to jump in because it is a hot topic, a lack of understanding can lead to significant losses. Orman emphasizes informed decision making in all financial activities, not just insurance. She urges her audience to strive for transparency and choose investments they can understand, ensuring they make choices that match their goals and risk tolerance.

The do-it-yourself investing route is tempting these days because the information is readily available, but consulting a qualified financial advisor is a smart move. Advisors act as expert guides, helping you navigate complex products, assess your risk tolerance and create a personalized financial plan. They don’t replace the importance of understanding your options, but they provide a valuable layer of professional guidance. Think of it as an investment in your financial future: an advisor can ensure your journey stays on track to achieve your long-term goals.

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*This information is not financial advice and personal guidance from a financial advisor is recommended to make informed decisions.

Jeannine Mancini has written about personal finance and investing for the past thirteen years in various publications, including Zacks, The Nest, and eHow. She is not a qualified financial advisor and the contents of this document are for informational purposes only and do not and do not constitute investment advice or any investment service. Although Mancini believes that the information contained herein is reliable and from reliable sources, no representation, warranty or undertaking, express or implied, is made as to the accuracy or completeness of the information.

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