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Larry King Live

How Can Investors Survive the Bear Market?

Aired January 2, 2001 - 9:00 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LARRY KING, HOST: Tonight: You can't afford not to listen to this woman. Financial guru Suze Orman for the hour taking your calls. She's helped millions find the courage to get rich. Might help you, next on LARRY KING LIVE.

Good evening. It is always good to have her with us. Suze Orman is the best-selling author and financial planner, a revised and updated trade paperback of the No. 1 "New York Times" best-seller, "The 9 Steps to Financial Freedom," is now in stores everywhere -- there you see its cover.

She is also the best-seller -- of course, the worldwide best- seller, "The Courage to be Rich." What an appropriate night for Suze to be with us; the Dow industrials down $140.70 to 10,646.15. Nasdaq down $178.66, to 2,291, a 22-month low. What's going on?

SUZE ORMAN, AUTHOR, "THE 9 STEPS TO FINANCIAL FREEDOM": I have to tell you, I think more is just going on than has been going on. The economy is slowing down. Last time we were on, Larry, we said interest rates were going up. When Greenspan raises interest rates, the economy slows down, and we are feeling it, and yes, we are in a slump.

KING: Here is the new issue of "Time" magazine, out today, "How to Survive the Slump." Now "slump" in sports means, for a while, the very good player is not hitting the ball, bad luck occurs, and then they come out of it. It is temporary. Is this temporary?

ORMAN: This is temporary if you consider temporary as a year or two. And so, it is already started it -- the year 2000 was a horrible year, it just was. The Nasdaq -- if you were in the Nasdaq, you went broke. In the Nasdaq, down 55 percent from its high.

KING: To you, that was a crash, not a slump.

ORMAN: That was not a slump. That was a serious debacle there because even though the Nasdaq -- the average went down 55 percent from its high, there are stocks that are down 90 percent, 100 percent, 200 percent. when something goes from 100 to 50, that may be a 50 percent decline, but for it to go from 50 back to 100, that is a 100 percent increase; that is a huge amount that we have to come back just to break even.

KING: Were they false promises to begin with? Were these stocks way overpriced?

ORMAN: They were totally overpriced, and we were all joining the bandwagon.

KING: Including you?

ORMAN: No, not including me.

KING: Suze is never wrong.

ORMAN: No. Suze absolutely has been wrong. However, in January, January 22, I actually came on -- the 21st, to be exact -- I came on national TV and I said, if you are in stock market for 10 years I have been saying to you, buy, buy, buy. I am now telling you, last year, it would be first time in 10 years I would tell you to sell. April 14, October 14, I was on this show with you, and I said I would not have more than 40 percent of my money in the stock market, 25 percent here in the United States, and of that, I wouldn't have more than 29 percent in technology.

That would mean, Larry, that 7 percent of your money would have been in technology. Things were crazy. When my mother is...

KING: Bonds were good.

ORMAN: Bonds were fabulous. Last year, do you know that Treasury bonds, in the 11 months of the last year 2000, went up 11 percent?

KING: So the government was the safest investment.

ORMAN: The government was the safest, but also, as interest rates go up, the price of bonds go down, when interest rates come down price of bonds go up. Now, even in this year, if it were me, I would have my money in bonds for this year as well.

KING: So you'd still sell.

ORMAN: It depends what you are in right now. If you are in the Nasdaq -- if you are in technology stocks, I would not be selling here. Now it is almost too late. If you are in a company that was a good company, that is going to come back, that has good management, has revenues, it is making some money, it will come back.

If you are in one of these companies, that was a fallacy.

KING: Worldwide wacko.com.

ORMAN: Yes. Dot-com you went dot-broke. It was really that simple.

KING: What did they do? Worldwide wacko.com. They bought time in a Super Bowl, and gave an ad on television. I didn't know what to do with the ad. Why did people buy worldwide wacko.com? I hope there is no such company. ORMAN: In the same reason that you see -- everybody is making money, you can't believe that they are marking money. Joe Schmo next door bought a stock, and he's telling you it's up 400 percent in 1999. And you are going, oh my God, and finally in the year 2000, you break down, Y2K turns out not to be an issue, and you say, you know what, I'm going to do it.

And I knew it was time to sell when my mother told me she was buying Microsoft. Very seriously. When my momma who's 85 years old -- mom, I love so you very much, but when momma called me to say, Suze, I'm buying AOL and Microsoft, because everybody's saying that I should. That's when I knew the stock market was over.

KING: But those are two good companies.

ORMAN: They were two good companies.

KING: Not good companies anymore. Suddenly, they've become bad companies.

ORMAN: But when of you have all this antitrust suits coming against Microsoft, you have a market that, on the whole, is starting to go down. Everything is going against it -- you have a stock -- Microsoft went from 120 down to the 40s right now. That's a serious decline. Microsoft will come back one day.

KING: So don't sell Microsoft.

ORMAN: No, but...

KING: Don't sell AOL.

ORMAN: No. AOL, I think, is a fabulous company to be buying. I would have no problem buying it here, if you want to know the truth.

KING: I should say, for the record, they own -- they plan to own...

ORMAN: That is right.

KING: The merger is still not final.

ORMAN: I know. But it's pretty close there, but it's -- there are good stocks, but why are you buying, what are your goals, what do you have going on? Are you now about to jump off the bandwagon like you jumped on? Because if everybody is about to jump off, you know it is pretty close to the bottom.

KING: When you jumped on, why did you jump on? If advisers knew that these companies had no solid backing, that there was no real income, why did you jump on? Why did people jump on?

ORMAN: Originally, the advisers jumped on years ago, because they knew that everybody else would jump on and it was the wave of the future, it was hope. It was our -- it was what could possibly happen and it went beyond any and all of our expectations. So we all started to jump on, and then we would get off the bandwagon, and then all of a sudden got off it went from 10 to 20, to 100 after we got off, so we got back on. And then it went to 150. And then we got off again, and then it continued up, and we never thought it would end.

Originally you got on -- not everybody did. You had many people who said, this is crazy, I'm not doing it, there is no value here, there are no earnings, what are you investing in? Those people, in the long run, now have made money. The people who jumped on and never jumped off are seriously in trouble.

KING: So what is safe?

ORMAN: Safe has a lot with your own personality, with your own money, with how much can you afford to lose, how much can you afford to risk? Safe, today, to me, truthfully, are still the good quality stocks: your Dow Jones stocks, your blue-chip stocks, your stocks like IBM, Johnson & Johnson, your energy stocks, health stocks. Stocks like that are safe stocks. They are earning money. If they could earn money for themselves, they can earn money for you. It is really that simple.

KING: Our guest is Suze Orman. We will be including your phone calls, of course. Best-selling author, and we are talking about turbulent times. Don't go away.

(COMMERCIAL BREAK)

KING: Today, by the way, was the worst performance for a year in the Dow history since 1981, and the worst performance in Nasdaq history since Nasdaq. This is Nasdaq's worst year ever.

ORMAN: Well, right now we are down 55 percent from its high. The Nasdaq went down 7 percent today alone. Do you know that it went down more today than the entire Dow Jones industrial average did last year? For the entire year? Now that we are down into the 2,200 area -- when you see a move of 170 points, that is a significant percentage move now; 170 points when Nasdaq was at 5,000 wasn't as great as it is when it is now at 2,000, so when you see these moves -- and we've got used to moves of 200, 300 points, when it was up at 4 or 5 thousand. We are talking significant moves at this point in time.

KING: I want to get to how individuals can be helped and we'll be taking a lot of phone calls. But the bonds skyrocketed today, right that worries you; right?

ORMAN: That does worry me. People...

KING: Everything worries you.

ORMAN: Well, a little bit, but it's like, we can handle it. But people came out of the stock market today, and started to go into bonds big time. Treasury notes skyrocketed in price today. We're down considerably in the price of treasury notes and -- or the yields on treasury notes.

Scares me, because now the money that could have been made in bonds, maybe isn't going to be quite as great. People should have been going into utilities; should have been going into bonds. Last year they rushed in. I might just be a little bit cautious in doing that this year now.

KING: According to "Time," 49 percent of American households are invested in stocks.

ORMAN: That's right.

KING: That's unprecedented; right?

ORMAN: It is unprecedented.

KING: That's scary, in a way.

ORMAN: It's scary depending on their time horizon. When do they need that money? Do they know about the stocks that they're investing in? Do they need that money now or five years from now or 10 years from now?

And is most of that money in 401(k) where they don't even know what their mutual funds what their invested in? And most people don't have a clue. They're invested in the stock market, but the truth is they don't know what they're invested in. Ask them what their mutual funds own. Ask them what's in their Roth IRA. They don't know.

KING: So how are they going to know how to put Social Security into stocks?

ORMAN: Honey, that was not something that I would say. If we can't -- we can't even count our own ballots. How you think we're going to count our own social security? We are not going to be able to.

KING: You think that plan will never fly?

ORMAN: I don't think that plan is going to, and this is the perfect example of a market that went down seriously and it's continued to go down. What are these people going to do?

KING: Can Alan Greenspan, we hopefully doesn't nick himself shaving tomorrow, can he do something about this?

ORMAN: Yes, and I wish he'd have done it. He needs to lower interest rates and...

KING: Because?

ORMAN: Because we need to spur the economy. We need to get some, you know, hope back in here. We need to see things start to start up again. We need to rev our engines and the thing that's going to rev the engines for us here is lowering interest rates. He hopefully will lower it this week. I hope doesn't wait to the end of this month to do it. I wish he had done it last month when he should have done it and I'm afraid that he waited at little bit too long in my opinion. KING: According to that same article, consumer debt including mortgages has doubled in the past decade. The average household in America, owes $15,000.

ORMAN: Yes, and that $15,000, I'm not sure what the article quotes, but I can tell you most consumers have $8,025 of credit card debt. Their average interest rate is 17.29 percent. Their average monthly payment is $144 per month. We are going broke. We're, you know, more bankruptcies are going to start again. Where are we going to get money to pay that kind of debt?

KING: Savings at a record low.

ORMAN: At a record low. Do you know that 53 percent of the people in the United States have about a $1,000 in savings, and that is it. Most of us are one paycheck away from bankruptcy.

KING: Tax cut going to help?

ORMAN: I would love to see a tax cut, because, yes, I think a tax cut...

KING: Of wide proportions, like the incoming president...

ORMAN: That's right, because a tax cut will help. You know, we have to be careful. Is the dollar going to get strong or weak? We need foreign investors to continue to come in here and invest in the United States. We need interest rates to come down, and we need to start spending money for the companies to have earnings that go up, because if earnings don't go up, these stocks are not going to continue up.

KING: Could we have a depression?

ORMAN: I'm not -- well, a depression kind of worries me. I think we may be in a recession, and none of us truthfully want to admit it. But I think we're closer to a recession than any of us have...

KING: Not a depression.

ORMAN: Not a depression.

KING: Not a crash.

ORMAN: Not a crash. No, not by any means. The problem is that a few years ago we had the hope of technology to keep spurring us on. We had the Internet. We had all these things happening, and these things have now in essence happened. So, where is our hope? Where does it go and that's when you go back to the stocks that were always there to begin with.

KING: Can people do something with regard to their tax returns now?

ORMAN: I think people need to look at are they about -- are they about to file their taxes and are they going to get a tax refund because...

KING: If they are, then...

ORMAN: If they are, what a mistake. Why -- would you lend me money interest free? No. You're lending Uncle Sam, though. If you're getting a tax refund back, you're lending Uncle Sam money interest-free year in and year.

KING: So what do you want? Don't take the refund?

ORMAN: I want you to adjust your W-4 forms, your exemptions so that you don't have more money withheld than you need withheld at the end of the year.

KING: In other words, if you have a refund coming, take it. But it's bad. You should be even.

ORMAN: You should be absolutely even. Also this year, if by chance, you happen to have losses in your portfolios and you happen to have gains, maybe what you need to do is off-set them right now. The new capital gains laws have changed starting this year. For anybody in a high tax bracket 28 percent or higher, if you buy something starting in 2001 and you hold it for least five years, the maximum capital gains rate is going to be 18 percent.

So, let's say you have some stocks that you do have are winners, and you have some that are losers. Let's offset the loses against the gains right now. Re-establish a new cost basis in some of these stocks that you had that are winners, and start your new holding period.

KING: Suze Orman is the guest. This is LARRY KING LIVE. Your calls will be included, We'll be right back.

(COMMERCIAL BREAK)

KING: We're going to start a little early taking calls tonight because so many people want to talk to Suze Orman, and this so is important, so let's go it.

Springfield, Ohio. Hello.

CALLER: Hi.

KING: Hi.

CALLER: Hi, Suze. I'm 60 years old. I have no debt. I take $20,000 income off my investments. I have $60,000 in fixed money market; $300,000 invested. I'm not in any dot.coms. I'm in big techs, IBM, Microsoft. I am diversified. I'll have Social Security this year. What should I do?

KING: Smile.

ORMAN: I was going to say, go have one heck of a good time. You own your home outright. KING: I...

ORMAN: So, what I would say to her, and so -- but I don't know if it's true or not, that if she owns her home -- if you own your home or you're paying a mortgage on your home, what I would like all of you to do right you now with extra money is will you please get rid of the mortgages that are on your homes. So many of...

KING: If can pay off the house, pay it off.

ORMAN: Pay it off, absolutely. If you want to guarantee yourself a rate of with absolutely no problems whatsoever, pay off any credit card debt you have; pay off your mortgages; pay off your car loans; pay off the debt. Debt is bondage. You will never be financially free if you have debt. So, what I would tell you is get all your extra money and get rid of your mortgages

KING: By the way, "The 9 Steps to Financial Freedom" back in book stores in trade paperback and, of course, "The Courage to Be Rich" is always published.

Forest Hills, New York with Suze Orman.

CALLER: Hi, Suze. I'm 42 years old, and I have a significant amount of money in a money market. With long term investing in mind, I'm re-ending a taxable account. I've recently divided the amounts among three different index funds: the S&P 500, the Wilshire 4,500 and an international index. Is that an appropriate choice for long- term growth?

ORMAN: It is an appropriate choice, but not if you take all of the money that you have in your money market funds and put it in one lump sum in those index funds. What I would like you to do is a technique and all of you listen up out there, I'd like you to do a technique called dollar cost averaging. Whatever amount of money all of you have currently have to invest -- let's say it's $12,000. I want you to take that amount and divide it by 12. In that case, it would be a thousand dollars. Every single month over the next year, you could take a thousand dollars or whatever that amount of money would be for you and put that amount of money into the markets. For those of you who are listening...

KING: What do you do with the other 11?

ORMAN: Leave it in a money-market fund and let it make interest for you: 4, 5, 6 percent right now interest in a money-market fund is far better -- even if you are paying taxes on it -- than losing 7 percent in one day in the Nasdaq. So...

KING: Is there a best -- I have always meant to ask this -- is there a best financial firm? I see these commercials: Solomon Smith Barney. Oh, he knows. Thank you, PaineWebber. Right? The guy on the train. Everyone else don't buy PaineWebber but that one guy. Is there a best company?

ORMAN: I think it has more to do with the adviser that works for the company than the company itself. Now that the Internet allows to us share information so readily, I think it is so easy for you to be your own good financial adviser.

KING: So it's the realtor, not the agency.

ORMAN: That is right.

KING: OK.

Long Island, New York, hello.

CALLER: Yes, hi, Suze -- couple quick questions. One, I wanted to know what you thought the role of long-term care is for someone in retirement with planning. And second, I think I heard you speak about variable annuities. I don't you think you were really in favor of them because of the expenses. But what about the fact of -- I mean, we saw what the market has done -- if you had two portfolios, each with a half-a-million, if they both went down $250,000 and the spouse passed away, at least, you know, you would have that safety principle.

That wife would get the $500,000, while the other wife is left with $250,000.

KING: So far this audience has got a little money.

ORMAN: This audience has got a lot of money. For those of you who don't know, a variable annuity is simply a contract with an insurance company that allows you, within this contract, to buy mutual funds within it. Because it is an insurance contract, you do not pay taxes on it. Every time you buy or sell a mutual fund, it is called a variable annuity. First of all, long-term care insurance: Love it. Out of all the insurances out there, it is one of my absolute favorites for you to look at.

KING: Why?

ORMAN: Because -- I'll tell you why. One out of three of you, after the age of 65, will spend sometime in a nursing home. Medicare will not pay for it. You know, your health insurance will not pay for it. But you will pay for it out of your own pocket. Most people become financially destitute 14 weeks after they have gone into a nursing home. There is nothing more devastating to...

KING: Long-term care insurance covers a nursing home.

ORMAN: That is right. Now, there are about 130 different companies out there. There are probably only four or five good ones that people should look into.

KING: How do you know what's good?

ORMAN: You want me to tell you?

KING: Yes.

ORMAN: So here are the five good ones, if I were you, that I would look at: UNUM, GE Capital. I would look at CNA. Those are the top three, truthfully, that I would look at. But make sure, because most people are not going to use long-term care insurance until the age of 84. So when you buy it, you want to know not only can you afford it while you are working, but that you are still going to be able to afford it when you are 60, 70, and 80 years of age.

KING: Also, you have to be sure you are going to live long.

ORMAN: Well, the truth is: May you hope that you never use it.

KING: You never -- you could die at 62 and never use it.

ORMAN: Or you could die at any time. But you never know when you are going to die. If that was one thing we could figure out: the day that -- you know, the second you are going to die, we would be lucky. But since we don't know when that is, it is something that I really think you should all plan for. Variable annuities: Urrr, this is the Suze indicator. Urrr. I really dislike them.

KING: Control yourself, Suze.

ORMAN: I'm trying. I'm just trying...

KING: We'll be right -- just control yourself. We'll be right back with more after this.

(COMMERCIAL BREAK)

KING: San Diego for Suze Orman.

CALLER: Yes...

(CROSSTALK)

KING: Hello, speak up. Are you on? Are you there?

CALLER: San Diego?

KING: Yes, go ahead.

CALLER: Hi, I'm a 43-year-old single mother, and I moved back to the states in '99 and invested just about everything I had -- $50,000 -- in the stock market. And I would like to know from Suze what would you do if you were in my position, today?

KING: What do you -- what is the $50,000 worth today?

CALLER: It is about $45,000. I had made a profit of about $25,000.

KING: That's not bad.

CALLER: And now I'm down about $5,000.

ORMAN: Do you have any credit-card debt?

CALLER: No, I have no debt.

ORMAN: Do you own a home?

CALLER: No.

ORMAN: Do you want to own a home?

CALLER: Yes.

ORMAN: All right. And do you feel that you are now of the age and in a place in your life that you know where you want to live? And that may be a home as a possibility.

CALLER: Yes.

ORMAN: All right. So here is bottom line very quickly: If I put $50,000 in the market in 1999 and it is only worth $45,000 right now, girlfriend, you are doing just fine, I have to tell you. Down only 10 percent is not that big of a deal. At your age, you are still young. I would keep doing what I'm doing, because whatever stocks you chose obviously were good quality stocks, had earnings. You have what it takes. You are doing great. Now start saving and buy yourself a home, because you can't live in a stock portfolio.

KING: Can you give general -- like, if you have $25,000...

ORMAN: Yes.

KING: ... spare today, what would you buy?

ORMAN: If I had $25,000 that I did not need for at least 10 or 15 years...

KING: Fun money.

ORMAN: Fun money. Probably what I would be buying right now are the QQQs.

KING: What's that?

ORMAN: Which is an index that tracks the Nasdaq 100. It is down seriously off of its high. That is how I would play these technology stocks. It buys the Nasdaq 100.

(CROSSTALK)

ORMAN: It is about 40 -- it's $52 a share right now, down from about $120. That is it what I would be buying.

KING: Chicago, hello.

CALLER: Yes. My situation is a little bit different from some or your previous callers. A couple years ago, I suffered job loss. I have about $20,000 in credit, in revolving debt. I depleted my savings during the job loss. And, of course, I suffered a poor credit rating. But I have two pieces of real estate, one I have had for 10 years, another rental property I have had for two years. How can I get back on track?

ORMAN: Do you have equity in either of the pieces of real estate that you own?

CALLER: Yes, I do. The one I have had for 10 years (INAUDIBLE) about $20,000.

ORMAN: If you -- what I would do is, when you have $20,000 of credit-card debt, that is debt that is not tax deductible. And it's usually at a very high interest rate, especially because you said you have a bad credit report. That means that they probably are socking you a good 18 or 21 percent interest that is not tax deductible on your credit card.

What I would do is, I would try to get equity out of my home, get the $20,000 out of the home, turn a non-tax-deductible credit-card debt into a tax-deductible, home-equity line of credit, pay off the credit-card debt, and then take the money that you were using to pay off the credit card debt every month and put that exact same amount of money back into the house, so that you get rid of the loan on your house sooner than later.

KING: Are credit cards shylocks?

ORMAN: Oh, they are worse than drug-dealers. They have the legal authority to come into the homes and, you know, seduce your children on college campuses and give them credit limits when they are not even making any money in the hope that mommy and daddy is going to pay for them.

KING: Why would they do that, since the kids may not be able to pay it?

ORMAN: In the hopes that, when kids the call up and say: Guess what, Momma? I don't have $5,000.

KING: So they will their take their risk

(CROSSTALK)

ORMAN: That's right. They'll take their risk. You betcha.

KING: We'll be back with Suze Orman. Lots more to go and lots more phone calls on this edition of LARRY KING LIVE. Tomorrow night: transition politics. Don't go away.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP, "WHO WANTS TO BE A MILLIONAIRE")

REGIS PHILBIN, HOST, "WHO WANTS TO BE A MILLIONAIRE": Here's an important one for $32,000, Bob. Best-selling author Suze Orman writes books giving advice mainly on what topic: personal finance, marriage, weight loss, religion?

UNIDENTIFIED MALE: Let's go with "a," personal finance. PHILBIN: Final answer? Hate to say it, I know.

UNIDENTIFIED MALE: Yes. go ahead.

PHILBIN: He got it right for $32,000.

(END VIDEO CLIP)

KING: The audience had to help. You know that guy now, right?

ORMAN: Well, you know, it's funny. He went on to win a million dollars. He didn't know what the answer was, so they polled audience, 64 percent knew. But a few days later, I was on the "Today" show and he was a guest and he said, so what should I do with this money? And the advice gave him was just was pay off...

KING: Pay taxes.

ORMAN: Pay the taxes, of course. But pay off the mortgage on your home. Oh, the letters I got from the financial advisers saying that was worst advice you ever could have given him. He could have put it in the market and lost all his money. But anyway, I thought it was pretty great.

KING: Brooklyn, New York. Hello.

CALLER: Hey, Larry. Hey, Suze.

KING: Hey, Brooklyn, how are you doing?

CALLER: OK. My question is, I'm one year out of debt. No more debts with anything. I'm 41 years old, soon to be 42. What's my next step?

ORMAN: Your next step is now start to accumulate some money so then in case anything happens, you would be OK. Do you have any emergency funds set up?

CALLER: Yes, I just started one a few months ago in a mutual fund that's paying something like 5 percent or a little bit over 5 percent.

ORMAN: All right, so, for all of you out there -- and this includes you as well -- one of the best money market funds out there is the Vanguard Prime Money Reserve. It pays a good interest rate. Take your money, keep it in there. Keep it liquid in case something happens to you.

Start making reserves for yourself. At least six months to maybe one year of expenses. Then start opening up retirement accounts. You should you have a Roth IRA. If you work for a company that has a 401(k) plan, especially if they match, make sure you're contributing the maximum to that. Time is of the essence. If you start putting money away today, you'll have lots of money in the future. But invest it.

KING: Good luck.

Shavertown, Pennsylvania. Hello.

CALLER: Hello, I am 60 years of age. I've been disabled for years. My husband is a TT62 (ph). We bought a house, our first house, seven years ago. We owe $30,000 on it. We have no cash available. A year ago we inherited $150,000 of old telephone stock. What do we do?

ORMAN: It depends which telephone stock that you have, but because you inherited this money, and since you inherited it, most likely because you inherited it in the form of stock, so your cost basis on a stock is what it is the day that you inherit it. Chances are that if you were to sell some of that stock right now, you're not going to owe any income tax whatsoever.

In fact, you may have a loss on it. What I would do if I were you, given that you know you're in this kind of a situation, I would sell at least $30,000 of that, stock believe it or not, and I would pay off the mortgage on my house. I would want to see you in a totally debt free situation.

KING: Are you against all mortgages?

ORMAN: No, I'm not but when you have a woman of that age, and here she is, and she's in a situation is she going to be a able to work is she not? The goal is that you want to own your house outright by the time Social Security starts.

KING: Who should not pay off the mortgage?

ORMAN: You should not pay off the mortgage when you're really young. You have obviously no money to do so, and, you know, can't even afford to make the payments let alone -- but most of the time, here's the scoop. Your financial adviser says to you, you need a mortgage. It's a tax write-off. Keep it.

Your greatest years of the tax write-off is in the beginning years when you don't even have a pot to pee. By time the time you're making all this good money, it's all principle you're paying back. So, truth is, I own my homes and I own them outright.

KING: Cars, too.

ORMAN: Absolutely.

KING: Sacramento. Hello.

CALLER: Hello, Suze. My wife and I are in our early 30s, and we will be buying our first home this year.

ORMAN: Yes.

CALLER: And as you know, as first-time home buyers, we'll be able to take funds out of our IRA penalty free to put towards the down payment. I'm wondering is this ever a good idea? ORMAN: You said the key word there. You'll be able to take it out penalty free, and why do you think the government allows you to do that? I'll tell you why.

KING: So you can buy a house.

ORMAN: Not only so you can buy a house, but it's penalty free but it is not income tax free. You're still going to have to pay the income taxes.

KING: So, why does government want you to do this?

ORMAN: So the government wants you to do it possibly so they can get their money sooner than later, and it allows them to do it -- here's the problem. You're going to need money as well when you retire to live off of. That's usually your retirement funds. They're your 401(k)s, your IRAs.

While it's true you can take money out in order to put it down as a down payment, you have to know that the area that you're doing this in, of where you are buying your real estate, that you're not buying at the very top of the market. If I were buying real estate right now, I'd have to think a little bit twice about it because I think you're possibly hitting it at the exact top of the market.

So, if it were me, I might wait a little because this wealth factor is going to come out of the market, so you might get a better deal.

KING: Over the long haul, though, doesn't property pretty much hold up?

ORMAN: Property does hold up, but right now it has gone so out of whack.

KING: Therefore it might be smart to rent?

ORMAN: Rent for a little bit, until interest rates come down a little bit here, until the prices of real estate comes down and then I think it'll be time to buy again.

KING: Bellevue, Washington. Hello.

CALLER: Hi, Suze. How are you?

ORMAN: I'm great. Thank you.

CALLER: We're a young couple with a new baby renting, and we want to buy a home three to five years. We make $65 a year. We have a thousand in Pacar (ph). A good 401(k); a thousand dollars in student loans; two car payments and we recently acquired $10,000 for savings. We're wondering what to do.

ORMAN: This is what I would tell you. Since you want to buy a home within two, three, four, five years I would sock every penny I could for a down payment on that home into a money market fund. Do not put the money that you want to purchase a home with into the stock market.

If you have money that you're not going to need to touch, that you don't have it for a reason for five or 10 years, that if you want to start dollar-cost averaging into the market where I explained earlier, where you take a specific sum money every single month and put it into the market, month in and month out. That's fine, but money for house, I want you to you keep it in a money market fund. Keep it safe and keep it sound.

KING: You had a thousand dollars to invest tomorrow, what would you buy?

ORMAN: The QQQs, I told you. I like those.

KING: You can buy them on where?

ORMAN: You can buy it on the American Stock Exchange. Again, they're right about $52 a share.

KING: That's what you'd do with a thousand dollars?

ORMAN: That's what I've been doing.

KING: You're smiling

ORMAN: OK.

KING: We'll be back with more calls for Suze Orman on this edition of LARRY KING LIVE. Don't go away.

(COMMERCIAL BREAK)

KING: Just for the information, QQQ is down 4.994 today. Is that bad or good?

ORMAN: Well, it's.

KING: It's good if you're buying it tomorrow.

ORMAN: It's good if you're buying it, but if you're dollar cost averaging and you continue to buy it, eventually, when technology turns around or the Nasdaq turns around, it's the best way to play it.

KING: With your power, Suze, and the clout of this show, tomorrow could be a good day.

ORMAN: Could be a good day. Let's go buy.

KING: San Francisco. Hello.

CALLER: Hi, Larry. Hi, Suze.

ORMAN: Hi.

KING: Hi. CALLER: I'm 35 years old. I make $22,000 a year. And I'm $16,000 in credit-card debt. I declared bankruptcy seven years ago already. And I finally got out of it. And then bad times hit this last year. And I'm back in. What do I do?

ORMAN: Well, you know...

KING: Punt.

ORMAN: Yes, you do punt. It is easy to say: Here you are. You have already claimed bankruptcy once. And now you are in this situation again. Anybody can give you financial advice, so to speak: Either you claim bankruptcy again, how to do whatever. But I would like to talk to you about something different. I would like you to figure out: Why is it that you got into credit-card debt again?

What are you getting out of it? You know, so many of us make mistakes with money. So many of us don't invest when we should, or we stop doing something, or we are spending more money than we know we should be spending. Until you figure out why you continue to get yourself into financial trouble, what you are getting it from emotionally...

KING: And the card makes it easy, though. That is it.

(CROSSTALK)

ORMAN: The card makes it really easy. But when something like that happens, Larry, usually it is also saying: When you feel less than, you spend more than. And a lot of times -- in fact almost all the times, in my opinion...

KING: Low self-esteem.

ORMAN: Low self-esteem gets you to go out and buy things that you know you don't need, because you think you are the things that you buy.

KING: Why does she keep getting cards, this woman? Oh, after her bankruptcy, after seven years, she can get them again, right? And they want to give them to her.

ORMAN: They want to give her, because she knows -- they know that she is going to spend.

KING: But even though she may declare bankruptcy again, which beats them out of the money.

ORMAN: That is right.

KING: They don't care.

ORMAN: They don't care.

KING: Bartow, Florida, hello.

CALLER: Hi, Larry.

KING: Hi.

CALLER: I would like to ask Suze a rhetorical question. I know no one knows, but is the Nasdaq near the bottom, or does it have further to go?

KING: Good question.

ORMAN: Good question. I have to tell you, I don't think we are quite near the bottom yet. I know we have certain support levels that we could still break here. I think that it could very easily go down to about 2,000. There is still not enough that has come out of this market, believe it or not. We went up so high, that even though I know we have come down so low, you are all going: But this has got to be really low.

I don't think we are quite there yet -- just in my opinion.

KING: Oh, boy.

Thousand Oaks, California, hello.

CALLER: Hi.

KING: Hi.

CALLER: It's nice to speak to you.

Hi, Suze.

ORMAN: Hi, my friend.

CALLER: Hi. Suze, I'm 67 and I retired about a year-and-a-half ago. And I rolled over my 401(k) last September into a brokerage account. And following your newsletter, and some of the books of yours that I have read, I have invested about half of the percentage that you suggested for stocks into mutual funds.

ORMAN: Yes.

CALLER: And I have been wanting to make my own choices, so this feels real good. But the way things have been, I haven't got as far as investing in bonds. And I know that that is one place that I should be putting some of the money that I have rolled over. But I know absolutely nothing. Even with reading everything, I'm still confused.

ORMAN: All right. So here is what I would tell you: The safest bond out there is a Treasury bond.

KING: United States government.

ORMAN: United States government.

KING: Never missed a payment. ORMAN: And I don't think they will, because why? A United States Treasury bond is guaranteed by the taxing authority of United States government. So you could buy a Treasury bill, which is about nine months, a Treasury note that is anywhere from about two years to seven years, or a bond that is seven years and older.

If I were you, I would look at buying two-to-five-year Treasury notes. You could either buy through the federal direct system, TreasuryDirect, where you buy directly them directly there. You could buy them in a brokerage firm for $25. There is many ways to do it. But if I were going to start buying anything into the bond market, and I was just getting started, I would look at treasuries.

KING: Orlando, Florida, hello.

CALLER: Hi, there.

KING: Hi.

CALLER: Thank you both for taking my call.

KING: Sure.

CALLER: I am 43 years old. I have about $50,000 in cash, a couple of couple rental properties, $130,000 in tech stocks down horribly. I want to know what to do with that $50,000. Should I buy real estate? Should I sell the tech stocks? Help.

ORMAN: Well, there you go. Why do you have to do anything with the $50,000? If the $50,000 were simply sitting in a money-market fund making interest for you -- or maybe -- you said you have rental properties. Maybe you are better off taking that $50,000 and paying off the mortgages on your rental properties that are probably at a higher interest rate, because rental-properties interest is at a higher interest rate than your own primary home.

So, if I were you, I would be taking that money and keeping it safe and secure right now, because you already have $130,000 that are down dramatically in tech stocks. Don't risk any more there.

KING: We will take a break. When we come back: Henny Youngman used to ask a question. It's about a dollar and about credit. I will ask it of Suze. I have never heard the answer. You may wish to ponder it yourself. This is called a hook. Don't go away.

(COMMERCIAL BREAK)

KING: OK, the Henny Youngman scenario: Somewhere in Switzerland, there is a sheep-herder. He takes care of the sheep. He sends the sheep to another guy in Belgium who skins the sheep. That guy takes the skin, sends it to a guy in England, who processes the skin, ships it overseas to New York, where, in New York, they die the skin, send it to Connecticut, where the guy then forms the skin into a sweater. He sends it to a middleman in Atlanta, who boxes it, sends it to a retailer in Miami, who sells it to Henny Youngman, who didn't pay for the sweater. He put it on credit. How are they all eating? (LAUGHTER)

ORMAN: I can't even believe you knew how to tell that whole story.

KING: How are they all eating?

ORMAN: I don't know.

KING: I don't know either.

ORMAN: So there we go.

KING: He put it on credit. Nobody is paid a penny. And everybody is eating.

(CROSSTALK)

KING: OK. What do you make of the Bush appointments: O'Neill and the like?

ORMAN: Oh, boy. I don't know about that. They're a little conservative for me.

KING: You're more Clintonian.

ORMAN: Yes. Yes.

KING: You liked Rubin.

ORMAN: I did, very much so.

KING: Well, he was a great secretary of the treasury.

ORMAN: I liked, very much so.

KING: Even critics would say he was good.

ORMAN: Yes.

KING: Long Beach, California, hello.

CALLER: Happy New Year, Larry and Suze.

KING: Thank you.

CALLER: Suze, I need to know some information in regards to interest rates, which are going down. I'm in a position now: I'm buying my second home. My first home, I just paid off. And I need to know, when the bank calls me and tells me I have 30 days to make a decision on when I want to lock in my interest rates, are there are better days of the week, or does this have do with the president being installed? What kind of advice could you give all people in my situation?

ORMAN: I only would lock in an interest rate if interest rates -- I was of the opinion that interest rates were going to go up rather than down. When interest rates are coming down, you wouldn't want to have to lock in, because you might get a better rate tomorrow than you do -- than you did today or five days from now. So when it comes time to close on your home, that is when I would settle on the interest rate.

KING: By the way, we should explain, in mentioning QQQ, you are not plugging the stock. That is the index of the Nasdaq.

ORMAN: That is an index. And the reason that you never hear me talk about individual stocks is because I only own individual stocks. The QQQs will operate off of what the Nasdaq 100 does. So I don't care how many of you go out and buy it. You can't affect it.

KING: It can't help you.

ORMAN: You can't help me out.

KING: Ellensburg, Washington, hello.

CALLER: Hi, Suze.

ORMAN: Hi.

CALLER: I graduated from college in June. And I'm getting advice from adults saying, financially, if they had to do it all over again, some say they would put $100 a month in savings. Others say put it in all in the stock market. I was wondering, if you were in my position, how would you start financially from the beginning?

ORMAN: How old are you?

CALLER: I'm 26.

ORMAN: Oh, 26. You ought to marry me. You're the perfect age and here is the scoop why. At the age of 25 or 26, if I were you, I would put $100 every single month, since that is the amount of money you said, into a Roth IRA, even if you put it into a straight mutual fund, any investment, I would go that way and here is the reason why.

You put $100 every single month, starting right now, into a good mutual fund, and you do so every single month until you are 65, and let's say that mutual fund averages 12 percent, do you know that you would have $1 million by time you are 65? But, if you wait just 10 years, until you're 35 -- you think, what's the big deal: $100 a month, $1,200 a year, $12,000 over 10 years; what difference could 10 years make?

If you started at 35 rather than 25, at the age of 65, you would have only $300,000. That $12,000 difference, that 10 years equated to $700,000 less money for you. Put it into growth, put it into the stock market right now, every single month like clockwork, and you will be just fine when you need to be.

KING: We'll get in a few more calls for Suze Orman before we wind things up. I'm Larry King. Don't go away. (COMMERCIAL BREAK)

KING: Vidalia, Georgia. Hello.

CALLER: Hi, Larry.

KING: Hi.

CALLER: I can't see you, but I wanted to just ask a question to Suze. I'm from the home of the sweet onions. I want to ask Suze -- I have -- I put $500 in purchases a CD at a small local town bank, and within three months, I only earned $4.40 some cents, and my -- what should I do with that? Because that doesn't seem like a great investment to me, and I have been reading your book, "9 Steps of Financial Freedom" and "Courage to be Rich."

Also, I have some extra money that I like to invest in my seven year-old child. I'm not sure how I should use that. Also, Suze, I like you to know I followed you along on Oprah, so next time you see her, tell her Vidalia said hello.

ORMAN: I will, from the sweet onion state. So, it will depend, you know -- even though you said that it was only $4 and some odd cents in three months, the truth is, on $500, even at 6 percent, that is only $30 per year, that it would earn, so really 4 or 5 dollars in a 3-month period of time is not that bad, because I got news for you, if you had put that $500, most likely, in the stock market, it would probably be right now, $325 so, sometimes we look at these small amounts of money, and we think it is not working for us, we are not doing right.

If I were you, I would still keep that money safe and sound in either money market funds or CDs or things like that.

KING: Houston, Texas. Hello.

CALLER: Yes, hello. Suze, I just found out about dollar-cost averaging, and I plunked $80,000, all at once, in July of '99 and now my stock -- or my mutual funds are down to $60,000. I'm a new investor and I'm scared because the market's down. I don't know what to do. I'm 35 years old.

ORMAN: At 35, I would take a look at the investments I have. If your investments have gone down proportionately as the market has gone down, meaning: look at your mutual funds, look at your stocks, are the stocks and mutual funds that you are in -- have they gone down more than similar stocks or similar mutual funds that you would have been invested in? If they have, then you need have to get out of those and into better companies.

But if they have gone down, equally, to what the market or other mutual funds have gone down, I have to tell you, at this point, you are 35, just stick there. But don't stop. Continue to put money in. What happens is the market goes down -- now is the time to be buying somewhat, if you have five or 10 years, and we stop. We buy when it's high, but when it goes down, we stop. The markets will come back again; they always have. If you have 5 or 10 years, you will be OK.

KING: Last caller. Hamburg, New Jersey. Hello.

CALLER: Hi Suze. What do you think about cashing a 401(k) out to pay down credit card debt and also buying CDs?

ORMAN: Absolutely not. For those of you out there, if you have a 401(k) you are not to cash it out to pay down credit card debt and you are not to borrow money from the 401(k), which all of you are eligible to do, to pay off a credit card debt.

The reason is, money in a 401(k) is put in there with pre-tax dollars. You haven't paid taxes on it yet. When you take a loan out and you go to pay it back, you pay it back with after tax dollars. When you go to take the money out again when you're 59 1/2 later, you're going to pay taxes on it again, so you are going to get double taxed, if you do it that way.

You are going to need money as much today, as you do 20 years from now, when you are no longer working. Credit card debt needs to be paid off with money that you are earning.

KING: Since no one knows when they are going to die, how much should they save?

ORMAN: As much as they possibly can.

KING: Shouldn't they also have a good life?

ORMAN: They should have a good life...

KING: I mean, they shouldn't say to themselves, I won't take that trip, you know. If they can afford the trip, take the trip.

ORMAN: But you have to figure out, what does that trip truthfully cost you? If you spend $5,000 for a trip today, you are not just spending $5,000, you are spending what that $5,000 could be 20 or 30 years from now.

KING: But if you keep thinking like that, and then you die when you're 70, you never made the trip.

ORMAN: But you have to look at your entire scenario. Do you have the money to save -- and go on a vacation? Do you have credit card debt? Do you have anything put away for your retirement? Do you have anything put away for your children's education? Little by little, everything and anything is possible.

KING: Because you can't take it with you.

ORMAN: You bet. That is the best thing I have ever heard you say.

KING: Woody Allen once said, see this watch? See this watch, folks? On his deathbed, my grandfather sold me this watch. Anyway -- little joke, little joke. Financial joke.

Stay tuned now for CNN TONIGHT with my man Bill Hemmer. We'll be back tomorrow night with a program devoted to transition politics, and the official entry into the United States Senate tomorrow of Hillary Rodham Clinton.

Thanks for joining us. For Suze Orman, I'm Larry King from Los Angeles. Good night.

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