Emergency Fund, Investing, IRA, Retirement, Roth IRA, Stock Market, Stocks
January 03, 2021
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On this podcast, Suze gives us her 2021 financial predictions, focusing on the Stock Market and real estate.
January 3rd, 2021. Can you even believe that one 2021, really? Don't you all remember, or maybe some of you don't, when it was Y2K, it was gonna be 2000 and all the computers were going to stop. And everybody ordered all this stuff to make sure that that when everything crashed, that everybody would have everything that they needed and nothing happened. And here we are 2021, 21 years later. Suze O. here and welcome to the women and money podcast as well as the men smart enough to listen? Did you all enjoy the other day’s podcast, I think, was the 31st. Did you enjoy that an entire podcast. There's nothing more than me and KT laughing. If you’re ever depressed you should go back and listen to that podcast because even when I listened to it, I giggle all over again. And I think it's good to giggle. It is good to laugh. It is good to feel happy And with that said, I hope all of you had a good new year, as you possibly could have had. And mainly I know you're all happy. You know why? Because 2020 is gone. Every single one of us could not wait for 2020 to end. What a horrific year. And now we're all so happy as here we are, 2021. And now we're feeling great because we have the vaccine. Everything's gonna be OK in our heads. The market may continue to go up or not. We'll find out in a little bit here. Same thing with real estate. Everybody's feeling more hopeful simply because 2020 has ended. All right, I wish I could feel as optimistic as all of you. And it's not that I'm a pessimistic person. I'm not. But I most certainly am a realistic person. And I still have serious concerns for 2021. Different, different than I had last year. Last year when I was telling you, be careful for February and certain things like that these are different concerns, these concerns really aren't about Covid, although I do think we have to all be seriously, seriously careful with it, whether we've gotten a vaccine, whether we haven't gotten a vaccine, whether you have the antibodies, whether you don't because I think it is absolutely possible that you could see a resurgence of this again in September. But my concern really isn't about covid. My concern really is about the economy, and I've been telling you that the stock market and the economy are two different things and we've seen that, haven't we? We saw an economy that absolutely was going down, that we're in a recession, that not only are we in a recession, in my opinion, we are in a deep recession where millions and millions of people are unemployed jobs not coming back, food lines, all kinds of things. And yet the stock market keeps going up and up and up. And now I'm at the point where I am concerned and I will tell you why, because today's podcast, as I promised you, is going to be about projections, what I think might happen and how I think we might want to prepare for what might happen and just why it might happen. But in order to tell you about the future, I just want to go back to the past very briefly here. And the past that I want to go back to, because this is exactly how I feel now is how I felt back then was all the way back to 1998 when the Internet first started to become popular, believe it or not, look how far we've come in all these years and everybody was getting into Internet stocks, Internet stocks, Internet stocks. And they kept going up and up and up. And I was like, they can't continue to go up this high. Are you kidding me? And then I would have clients come in to my office and they would say, Suze, I've put 90% of my money in Internet stocks. How do you feel about that? And I would go, I feel like you're absolutely crazy. You can't have that much money in Internet stocks, and yet they didn't care. And a lot of these people were like, Oh, no, Suze, this market's gonna go up and up. I can feel it. I go, but you're entering your retirement years you can't have that much money in Internet stocks, and nobody wanted to listen. And everybody was caught up in the total exuberance off how much the market was going up, especially the Internet stocks. In fact, I'll never forget that I was during this time going on QVC a lot. Maybe you've seen me there. Maybe you haven't. And now it's 1998. It's 1999 and one of the host said to me, Suze, my financial adviser is telling me to buy Internet stocks. What do you think? And I said to this host, I said, you stay as far away from Internet stocks as you can possibly get, and shortly after that, everything did change. But I just want to talk to you for a second about how you view bubbles and the impact that the growth of a bubble can actually have on you. Because on some level I have to tell you, I really believe we are now in a stock market bubble. A lot of people are going to disagree with me. I have no doubt, but I do feel that way, but I just want to give you an example of something. It was 1998 okay. And the stock market, the NASDAQ, had gone up 39% in 1998. Then it went up 85% in 1999. So that's a total of ah, 124% on your money. So let's just assume that in 1998 you put $10,000 into the NASDAQ. And for those of you who don't know, the NASDAQ has about 3300 different stocks in it. But most of them are technology stocks. That's what that is. Okay, so now, at the end of two years, your 10,000 has grown to $25,715 and you are like, Oh, my God, just like the people coming to see me. Suze, I'm more than doubled my money in Internet stocks. Are you kidding? Look at what I'm making. Okay, But then in 2000, 2001 and 2002 things started to go down. In fact, the NASDAQ went down 40% in the year 2000, went down 21% in the year 2001, and went down another 31% in the year 2002 for a total off a 92% decline. So in two years, from 1998 to 1999 if those were just the two years we're talking about, your money increased by 124%. But in the three years after that, your money declined by 92%. That's a 32% difference. So most of you may be thinking, Oh my God, I still made 32% on my money I'm doing great. I need you to understand how money works. Percentages don't necessarily mean more money. Let's go back for a second. And if numbers confuse you, then just write these numbers down and look at them because there's a lesson to be learned here that I think is going to happen again this year. I'll talk about that more in a second. It was the year 1999 and now you had How much? $25,715. Remember, you started with $10,000 and now you're at $25,715 and I know there are a lot of you out there that have doubled and tripled your money over these past few years. Now, in the year 2000 were down 40%. So 40% of $25,715 is approximately $10,286. Now you have only $15,429 left. But you go, it's OK. It's going to come back, I can feel it. And now we're down another 21%. So that's another $3238. Or now you have only $12,191 left. And then in 2002, you're down another 31% which is $3779 of your balance, and it leaves you $8412. So therefore dollar wise in 2002, you may have started with $10,000 you may have said Yeah, in two years, I was up 124%. In three years, I was down a total of 92%. But shouldn't I still be up 32% overall. That's not how it works. Dollar wise, you are down to $8412. So it matters percentages. And when the stock market start to go down, it matters everybody. Also, when you invest in the stock market, it absolutely matters. I don't care what anybody says. Let's just say you decide it that everybody was making so much money in 1999 in the year 2000, you couldn't stand it anymore. And you put all of the money you possibly could into the NASDAQ stocks into Internet stocks into whatever it was that was involved in that. And you did it in March, which was the 2000 peak. That's when this market peaked. Do you know that if you had invested in the year 2000 in March, it would have taken you 15 years after that? 15 years after that, just to break even. And even today, if you had kept your money in there the entire time, even today, if you had invested at the peak, you would have averaged only a 4% return on your money. I'm sure you would have beat inflation and everything but that's all you would have made. So when you invest, write this down when you invest, when you buy absolutely makes a difference. And that is one of the reasons that I have been telling you. Dollar cost average, dollar cost average, dollar cost average. Do not lump sum where you take an entire amount of money. You're gonna fund your Roth IRA this year, and you can put in 6000 or 7000, depending on your age, and you do not take all $7000. And let's say in March or April, when you probably are going to fund your Roth because that's the month that you normally fund it. You put it all into the stock market at one time. Don't you dare. Why? Because when I look at things and I'm going to get a little technical here on you, But I'm just going to tell you what I think now, I think between now when I'm recording this podcast and January comes in, February comes and March comes. I think the market's absolutely probably will go up. Maybe they'll go down, but they should have a surge here because everybody's feeling so optimistic about things. But come around March or April, I think we could have a turnaround. And I think that turnaround could absolutely go down. Not like it did last March where it went down and then it came right back up again. When I was telling all of you just stay put, stay put, stay put. This time I think if it does turn around and go down and there's no way for me everybody to know, not a prophet. I can't predict the future, but I am thinking this is probably going to happen. We'll have to wait and see. I think it could go down, and I think it probably could go down and down for a year or two and then turn around again at that time. Why do I think that? I think that for two reasons, number one people are just too exuberant. They are investing and thinking that this market is never going to go down and they are just wanting to buy, buy, buy. Why partly are they wanting to buy, buy, buy, because of a company by the name of Robin Hood and now other discount brokerage firms that allow you to buy without any commission whatsoever, and they allow you to sell without any commission whatsoever. And this has started to create a new type of investors. Seriously younger kids, everybody that air just throwing any money they can at these things. And they have not experienced what happens when they go down and they do not come up, such as started in 2000, way back when they probably were not even born, many of them back then. So that's one of the reasons this type of investing and a new type of investor scares me. I just want to tell you that also, when you buy a stock, you're really looking to say it's a stock worth what I am going to pay for it. It's known as valuation. Does this stock give me the value based on what it's earning? How it's doing? Is it making a profit? Is this stock worth my $35 which is valuable to me? Is it worth $35 a share? Does the valuation of it make sense? Okay. And you wanna look at something and say, Is it overvalued? Is it worth more than what I'm paying for? It is it worth more than what it's earning? Is it worth more than its valuation on paper, then what it is going for? So I need you to follow me here when you look at some of the biggest companies out there in comparison to small companies. A lot of the small companies are out of business and they're not doing great. But when you look at some of the biggest companies out there, okay, they are making as much as they did before the pandemic. So right now they're earning and making the same money as they were making before the pandemic hit. However, many of them are 35% higher in price on the stock market, making the exact same profit that they were making before the pandemic. So here we are, right, and these companies are earning the exact same thing that they were earning before the pandemic right now. But their stock price is 35% higher, many of them that does not make sense that says that their valuation is too high. Now I get that their valuation is what it is when it comes to the price on the stock market because of what people are willing to pay for it. However, there has to come a time when the valuation of a company, their earnings and what people are paying for it has to get in sync. And I think that's going to happen sooner than later. And this is true with real estate as well, everybody. Now I know I said to you last year I didn't think real estate was going to be going up. I asked you to be very, very careful about it. And real estate is a different type of an investment than the stock market, and the reason that is is in the stock market, you want to sell something, you just place an order online doesn't cost you anything. It's gone. When it comes to a property, a piece of real estate. You cannot just push a button and get your money. You have to put it on the market. People need to see it. It needs to be sold. How long will it take you to actually get your asking price? All of these things it takes time. And while you're selling something a lot can go wrong. The economy can crash, all kinds of things can happen. So real estate is a different investment than the stock market, and obviously never dawned on me that when I was saying being very careful of real estate, that there would be a moratorium on evictions, that pain mortgages would be postponed. When I originally said that, I really thought with the pandemic and all the people that are living in homes where they can't afford to pay rent, they aren't able to be evicted. Thank God, really. But the landlords aren't getting any help in most of the cases to be able to pay their mortgage payments so they're in trouble and that all of that was going to be a perfect storm. And we were saved from that perfect storm because of the Cares Act and certain legislation that was passed. But that perfect storm is going to hit sooner than later. Sooner than later, evictions are going to have to happen. Landlords are going to be foreclosed upon because they don't have the money. Even if you got your job back and you're in your home with the eviction, it doesn't mean that you don't owe that money. If you haven't paid rent for the past six months. Nine months? You owe that landlord that money. It just doesn't get excused. So I think in the year 2021 were going to have a tough time economically speaking. I also think we're gonna have a tough time with a whole lot of things that happened. Not just here in the United States, not just our economy, but very possibly wars that go on with Iran attacking this one and this one attacking that one. There is just too much anger out there. And I don't think there is a way to control it. And I have to tell you, honestly, it absolutely concerns me. The job market concerns me. Things concern me. So what should you do about what I'm telling you on this podcast right here. And right now, I've always told you that you need, at least if you're going to retire. So let me first talk to the people who are in retirement, are about to retire. You need a three-year cash cushion for your expenses. If you have money invested in the stock market and you decide that you're going to leave that money in the stock market, for whatever reason. Maybe you made too much money on it, and you don't wanna lose it to income tax because it's outside of a retirement account. Whatever it may be, I need you to have a least three years of a cash cushion. So if the market starts to go down that you are living off of your cash versus having to sell stock in a down market, how do you decide what your cash cushion should be? You look at your guaranteed income, and you compare that to your absolute expenses that it takes you per year to live. Okay, And let's say you have guaranteed income through Social Security, a pension, whatever it may be. It's absolutely guaranteed to you, of $15,000 a year. Let's say that is true, but you need $50,000 a year after taxes to live. That means you are $35,000 short off your guaranteed expenses. So then you would take $35,000 times that by three. That's $105,000. You need $105,000 as your three-year cash cushion. Do you understand that everybody. If you don't have that cushion while this market is up, Maybe not this week, next week or whatever, but before March, I would be looking to raise that kind of money by selling stocks. Now I understand that that may put some of you in a higher income tax bracket or whatever it may be. But hopefully you're only going to be paying capital gains tax on the sell of those stocks because you've held them for over one year. Or hopefully they're inside of a retirement account. And therefore, if you sell them and that's where you choose to raise money, you're not gonna have a tax consequence for doing so. I'm just going to sidetrack for a second here. That is another reason why I really love Roth IRAs. Roth, 401 K's Roth 403B’s Because if your retirement money is in a Roth and you go to sell it to generate the cash that I want you to have on hand for your three year cushion. Then, when you go to take it out, you're not paying any income tax on it, so you don't have to take that into consideration Obviously, you're gonna have to make a choice where you raise money. If you're going to do so, do you do it in a Roth IRA, a traditional IRA or outside investments, that you should consult your tax person? But it's something I want you to consider. Remember, I've always told you money that you need within 1,2 or 3 years is not money that belongs in the stock market. For those of you, however, who have a long time horizon, you're there and it's going out 10 years, 20 years. All right continue to dollar cost average if you want to stay in. All right. But if you happen to be in a situation, maybe in a retirement account, whatever it may be, maybe you want to take some profits here off the table around February or in March and you're not gonna have to pay taxes on it. You might want to consider that, or if it's outside of a retirement account and you just really don't care. And you're not making money and you're not in a high capital gains tax rate. You might want to consider that up to you, but you need to at least look at this and think about making decisions. Now again, I could be absolutely wrong. But I'm telling you, I'm thinking about how do I do this with my own money. As things just aren't making sense to me. I bought a stock two weeks ago, and it's up 50% in two weeks. Oh, you betcha. I sold it. I did it in my retirement account, so I didn't have to pay taxes on it, but I sold it. Remember? Do not get greedy. Do not repeat the mistakes of 1998 1999. And you did nothing. And then in the end, you ended up losing. And then it took you 15 years just to break even again. Okay, so those are a few of the things that I want you to know. I'll go back to real estate here quickly. I do think you should be careful that if you are going to buy real estate, please make sure that besides the 20% that you put down, that you haven't least a 12-month emergency fund. I am now changing having an eight-month emergency fund to a 12-month emergency fun and just make sure that you can afford the payments, the mortgage payments on a 15 or 30 year fixed rate mortgage do not get a variable rate mortgage here. And so you do 20% down, you have a least a 12 month emergency fund beside the 20% that you put down. You can afford the property taxes. The insurance, the maintenance on the house, everything. And if that's the case and you're gonna live in it for a while, fine. I don't have a problem with it. Just be careful about speculating in real estate in the next few months or so. All right, everybody. Not the most uplifting first podcast of the year, but one that I really believe, and one that I've thought about considerably for myself as well as for all of you. Next week, however, for those of you especially those of you who are down and out, you haven't gotten your job back. You're just looking where to put money or whatever it may be, you have got to tune into the January 10th podcast. It will be on this podcast that I'm going to be introducing an offer to all of you. I do not get paid to do that by the way, I don't make money if you do it, but something that really makes sense. And I want every single one of you to take advantage of it. And you're gonna need to hop on it because there will not be an unlimited amount that will absolutely go around. You know, tomorrow you might want to tune in. I'm going to be on Hoda and Jenna. That will be January 4th in the 10 o'clock hour, and we thought about telling everybody about this, but I said, No, no, we can't do that because there's no way we could do that many of these. There's only so many to go around. So I want you first here on my podcast. Especially the loyal ones that tune in right away, to absolutely take advantage of this offer. All right? You now know a few of my thoughts. I want you to be careful here. I want you to just be intelligent. I want you to not be greedy. I want you to think about all the things that are out there and how you've done on your money and how you yourself feel about it because in the end, here's the bottom line. It does not matter what Suze Orman thinks. It does not matter what Suze Orman says, this is your money, and what happens to it directly affects the quality of your life, not my life. So you have got to trust your gut more than you trust me or anybody else. So just remember, it's what I think. It doesn't make it right. So until next time just now, I want you to stay safe, stay secure, stay strong, stay healthy and always trust yourself more than you trust others.
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