Podcast Episode - Suze School: Brace for the Storm

On this edition of Ask KT and Suze Anything, Suze answers some more of your questions about what you can and can’t do with inherited IRAs, debt relief programs, worries about the banking system and more.

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Podcast Transcript:

Suze: August 4th 2024. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. Suze O here and today is Suze School. So I'm going to be giving you some really great information in terms of things that I want you to at least look into buying, my thoughts about what's going on, and basically the posture—the investment posture and psychology—that all of you should be taking.

But before we begin with that, I just have to say happy 18th birthday on Tuesday, Connor. What an incredible young man. I happen to think that you are all right. Everybody, I just wanted to say that. I like that boy.

As all of you know, KT and I live in the Bahamas and during this past week on the news constantly was that there was a storm that was going to come this way, but people weren't sure. The American model showed that it was going to come right at us. The European model showed that it was going to go under us and go into the Gulf.

So then the question becomes, what do we do when we're not sure what's going to happen? Because normally when a storm is coming right at us, we evacuate the island and we go somewhere that it's going to be safe and sound, because going through any type of serious storm on this island is not wise. Remember, this island at its widest point is half a mile wide, and our home has water on one side, water on the other side, that is not very far away at all from the house.

So you have to prepare, you have to go—Oh my God, the predictors are totally confused, so what should we do? Colo brought in all the furniture and he prepared the house as if it was going to come right here, and we knew that we could leave the island immediately if we needed to. But the thing that takes a long time is bringing in all the furniture, taking away everything that could fly, bolting everything down. That's what takes time—preparing for it in case it were to come. After, of course, we did all that, then the weather people came out and said it's absolutely going south. It is not going to hit us. So here we did all of this preparation and in the end, we didn't need to.

But it was smart that we did, because if the forecasters came out and they said it's coming right at us, we were ready for it. And investing is kind of like that. You really don't know where the financial hurricane is going to go, what areas it's going to hit, and how do you prepare so that no matter what happens, you are protected.

And a lot of that comes in with the areas that your money happens to be invested in. Just last week I talked a little bit about how you can't have all your money just in technology, just in the Magnificent Seven. You can't do that because if the financial hurricane comes in—oh, it's gonna hurt. And of course, last week the financial hurricane came in for that sector.

So the question is, what do I think the forecast is now for the overall economy? Because what's happening in the overall economy on every possible level really affects what will happen in the stock market as well as in your financial life. So let me start with telling you about the things that concern me and that I have to take into consideration when I'm thinking about what do we do with money?

The very first thing that I've always watched is Intel. Now, Intel is a big company and I just watch them because so many people use them and it's just a company that I've loved over the years. What was interesting to me about Intel is that prior to the pandemic, their payroll was at 110,000 people. Then in 2022 their payroll skyrocketed to 132,000—fabulous, everybody. However, at the end of this year, their payroll is projected to be below 100,000.

So they are now going to be down in employees more than they were during the pre-pandemic times. Now why does that matter to me and why do I look at that? Because you have to look at if companies are starting to lay off people and they are actually shrinking their payrolls, then the question becomes, what do those people who no longer have jobs do—especially at a time when artificial intelligence, in my opinion, is replacing so many jobs and occupations that people had to do prior to this and now a computer will do it for you.

So when people are laid off and then the job opportunities possibly aren't as great as they used to be, and then those people don't have any more money where they could make purchases, buy things, keep the economy strong—that's just a warning sign to me.

So when I look at where we are at the overall picture, currently we are at 1.94 million continuing jobless claims. Why does that matter? Because that's the highest that it's been since 2017. So again, that just is something that concerns me.

Now, the other thing that I love to always follow is: how are people doing with their credit cards? Are people paying their bills on time? Are they falling behind, or is it getting bad enough that they are actually in collections? I happen to always look at the National Association of Credit Managers reports, because what this association does really is it keeps track of all the accounts that have not been paying as well as those that have been placed in collections.

And the numbers currently, when you look at them, they are showing that it's the highest number since 2008. And I'm sure you all remember 2007, 2008, 2009—at least the beginning of it. Remember those times. So when I see that the number of people that are late in payments and the number of people that are going into collection are the highest since 2008, it concerns me.

Then of course, I always look at bankruptcies and bankruptcies are absolutely increasing. I also like to look at car sales even more than what's happening with real estate because real estate has gone so high. Interest rates to buy real estate are still relatively high—although not as high as they were—but they're still relatively high. So I look at car sales because people need a car. They need a car to get to work. They just need a car. Plus they want cars. And if you're looking at not just here in the United States but globally, car sales are weak across the board.

So those are certain things that are concerning me. Going away from money for one second, the other thing that is concerning me big time—and therefore affecting the things that I would invest in or tell you to invest in—is the potential war in the Middle East. And when I see that the United States is sending ships and carriers into the Middle East, that concerns me.

Could we be in an all-out war over there? Well, we have a good possibility—even a probability—that that is coming. Now, I hope it is diverted. I do not want to see that happen on any level, but one has to look at the realities of what is really going on there. And that then tells me, oh, well, I have to prepare for that—just like the hurricane. So what would I then want to put in a portfolio that helps protect me against such a possibility?

Next, let's go back to financial things that I find very, very interesting. I’ve been talking about either Series I Bonds for quite a few years and then I switched—and about a year ago maybe, I can’t remember the timing—I was telling all of you, I’m not liking Series I Bonds. If you have certain Series I Bonds, I would be coming out of them to take advantage and locking in the interest rates that treasuries were offering at the time.

And I know there are a lot of other people that do webinars and that are on YouTube and everything that are Series I Bond people and worry about inflation and those kinds of things coming again. I’m somebody who thinks, listen, if inflation comes again, if whatever, all right—I’ll deal with it at that time. But I think that there’s more of a chance that interest rates are going to go down in the long run than go up. And I’ve been telling you that, which is why I wasn’t liking Series I Bonds. I didn’t want to lock in my money for five years. I didn’t want to get what I was getting there. I wanted to lock into—remember all this everybody—the interest that you could lock in for 20 or 30 years on Treasury bonds.

I even told you a long time ago that I was putting significant sums of money into the 30-year Treasury bond. And I started doing that when interest rates were at 4.1%, 4.3%. And even though I was early, I just kept doing it.

After I had done that, by the way—I just want to say this—Treasury interest rates on those maturities went higher and higher. And I watched the value of my Treasuries that I had purchased go down and down. But I was patient because I believed in what I said. I don’t think that there’s a way one can time when something is going to happen. You just want to be prepared. You want your furniture inside in case the storm comes, and if it doesn’t come, OK—your furniture was protected, the house is protected, everything is OK. Are you following my train of thoughts here?

So I bought Treasuries, watched the money go down, and here we are—August 4th, 2024—and now when I look at the yield of 30-year Treasuries, they are back to 4.1%. So what that means is that the 30-year Treasuries I bought at 4.3% and higher are now actually in positive territory. Because I want you to remember: when interest rates go down, the value of bonds goes up. And the further out in maturity that you happen to have—so a 30-year bond—if interest rates go down, that 30-year bond, the price of it will go up more than a 10-year Treasury note or a 2-year Treasury note.

If interest rates go up, the value of a 30-year bond will go down more than a 10-year Treasury or a 2-year. So the shorter-term maturities have less fluctuation, both up and down, than longer-term maturities. Given that, I think interest rates are going to continue down here—I went out long term.

Now, I have suggested to all of you that you should look at doing 20–30 years. But given that we don’t know really what’s going to happen in this world, you have to prepare. So it doesn’t hurt to do a ladder—whether it’s CDs, Treasuries, whatever it happens to be—of longer-term maturities combined with some short-term. So that no matter what happens, you are protected. That’s still something I want you to be doing.

If you now look at the 10-year Treasury—and this is key everybody—the 10-year Treasury is currently at 3.8%. Do you also remember me telling you that if interest rates for a 10-year Treasury happen to go below 4%—here we go, everybody—and I said if that were to happen, don’t be surprised if you didn’t see 10-year Treasuries go down to 3.43%?

Now, why is that important? That’s important because it is the 10-year Treasury that essentially affects mortgage rates. What the 10-year Treasury does—it correlates to what the 30-year or the 15-year mortgage rates or even adjustable-rate mortgages are going to be, which obviously affects, as I just said, real estate.

Now, currently the 30-year mortgage is still at about 6.7% or 7.2%. The last time the 10-year was at 3.8%, the 30-year mortgage was about 5.22%. Now, that also had to do with economic conditions kind of back in 2009 and everything. But mortgage rates, in my opinion, are absolutely heading down.

The other thing that I find very interesting about Treasuries—which is why I’m telling you, you need to go longer term—is that the interest rates that you’ve been getting in money market funds are absolutely starting to come down as well. So it may not be as safe of a haven just to keep money thinking, oh, I’m always going to get 5% on it—because of what’s happening.

If you now look at the 2-year Treasury note, it’s now at about 3.88%. The 10-year is at 3.79%. They are incredibly, incredibly close. And because of what’s happening with interest rates out there in the Treasuries—for instance, which are easy for you to follow—I think that this will be forcing the hand of Jay Powell, who should have lowered interest rates already.

In my opinion, he is behind again. He is not being proactive to stop a possible recession or whatever may be looming out there. So he may be forced to actually lower interest rates even before September 18th.

But these are all the things, everybody, OK, that happen to be concerning me and things that I want you to absolutely be paying attention to.

Now, for those of you, let’s talk about technology for one second—and your stocks like Meta and Apple and Amazon and all the stocks that all of you have wanted to be in, or the QQQs, which is an ETF of the basket of all those stocks.

The truth of the matter is those will eventually, one day, come back. And they're not just going to come back because they're down. You are never to buy something just because it has decreased in price. You buy something because it has gone on sale and it's still a valuable, used commodity. It's something that you want. It's something that will be leading the world in how the world operates. And all of those kinds of stocks are still as great as they have ever been.

My favorite is Apple, as many of you know. And so when those stocks go down, obviously if you are losing sleep, you can't take it, all of that is just making you sick to your stomach—alright, then you have to do what makes you feel secure. Because remember, the goal of money is for you to be secure.

But it would have been a huge mistake if you have time on your side, where you can leave this money in those stocks and you are diversified in other areas as well—which I will talk about in a second. It's a huge mistake if you just sold.

And so therefore, even though they very probably will continue down, with wise management of your money, with continuing to dollar cost average into it on seriously big days when they are down, I don't think you'll be sorry a few years from now. But you have to know that you have time on your side.

And what starts to happen is: there was a day last week when the market went down considerably, and these stocks went down dramatically, and you were scared to death. But then the very next day, the markets skyrocketed and these stocks made a great comeback. And then you thought to yourself, oh great, great, it’s gonna go up from here. I know that’s what you were thinking. And you were relieved.

And then the next two days obliterated once again. Then you start thinking, oh my God, why didn’t I sell the day that they were up? What’s wrong with me? And now you are totally confused.

And what’s ruling your investment decisions are the emotions of fear and anger—fear that, oh my God, these are going to go down even lower, I’m going to lose my money; anger that you did not sell when they were at their top. And those two emotions are two out of the three internal obstacles to wealth.

When you come from a place of fear, when you come from a place of anger because you didn’t do something, you cannot make intelligent decisions. So maybe you should just stay and go away in terms of watching things that you know are incredible and come back. Do not forget 2022, when these stocks were obliterated—and then look at what happened. So you just need patience if you're invested in that sector and the ability to dollar cost average. Ok.

So, where should you be investing right now, given what’s happening—with the possibility of war, with interest rates coming down, with the economy maybe being in jeopardy, with layoffs and things like that?

Here are the areas that I really would like you to have some exposure to. But I’ve been telling you about these areas for a while now. One is gold. And gold is a great place for you to be invested. ETF for gold is GLD, in case a war happens to break out. I wouldn’t be putting a lot of money in it, but I would have some exposure to it.

I’ve already talked to you about bonds. And you can buy individual bonds or you could buy ETFs that are bonds, but it’s just something that you might want to consider.

Utility stocks and utility ETFs—with interest rates going down—utilities are giving a great dividend and also I think will give you some appreciation. So the ETF that I like for utilities is XLU. XLU, the Utilities Select Sector SPDR Fund, is currently trading at about $74 a share and giving you a yield of 3.22%. Now, it's very near its year high—but I don't personally care. I just think it’s something that gives you a defensive posture in terms of what’s happening.

The next is XLP. Now, this is an ETF—that’s the Consumer Staples ETF—that actually we talked about buying, and we bought a long time ago when it was about $79 a share. And I wanted you to do it at that time because I was convinced on some level that we might go into recession and that people were only going to be buying things that they needed—the staples in their house, meaning toothpaste and things like that that you need.

So I told all of you to buy it at the time. It was at a 2.82% dividend yield right around there, and you bought it—many of you. And then as time went on, and the market started to be OK and everybody was going into technology and everything else was skyrocketing, XLP—and remember, this was only for a portion of your money—XLP went down as low as about $65 a share.

And a lot of you were writing me saying, “Suze, do you think we should sell? What should we do?” And I could tell that they wanted to be more aggressive. So it was like, OK, if you want to sell, you could sell. There are other things you could buy and probably at that time make more money, which they probably did.

But as we speak today, XLP is right back again at $79 a share—kind of like my bond that I bought—and again paying 2.82% dividends. But I think XLP is a nice defensive posture that might make you a little bit of money. It’s not going to be like a QQQ or whatever, but it might make you a little bit of money and give you a little bit of income on the side. All right.

Next happens to be REITs—Real Estate Investment Trusts. Now, in the past, I gave you the names of two REITs that I liked very much. My favorite actually was Realty Income that has done very nice for all of us. I know Keith Fitz-Gerald really likes a REIT by the name of CareTrust REIT, symbol CTRE, and that’s at a 4.24% yield.

So those are REITs that I’ve told you about a long time ago on this podcast. And actually, if you had purchased them when I first talked about them, you would be up significantly. Another overall REIT is the iShares U.S. Real Estate ETF, symbol IYR. It’s at about $95 a share right now, paying about a 3% dividend—again, almost at its high. But for some exposure in that area, not a bad idea.

So another area is healthcare. And for exposure to healthcare via an ETF, I like the Health Care Select Sector SPDR, symbol XLV, paying you approximately—I think it’s 3%. Might be a way for not a lot of growth, people—it’s not a lot of growth, and it’s not going to skyrocket—but these are things that will absolutely protect you.

Obviously, you also want to be in defensive stocks or ETFs. Again: Lockheed Martin, Raytheon—stocks that will protect you, be defensive against what is happening.

Now, those are things that I would look at buying. What would I be staying away from or selling? I would be staying away from regional banks and European banks. I would not be investing in those.

The other things that I would be staying away from—at least for now—would probably be Bitcoin. I do think Bitcoin, currently at about $61,000, could very easily go down. We’ll see. If war happens, gold probably is a better bet for you there. But did you notice I used the word “bet”? You should never bet. But it’s kind of—when you're buying things like that, it’s a little bit of a bet, especially with Bitcoin.

But anyway, I still think long run, Bitcoin can go and make you a whole lot of money one day. But it is something that has to go up, down, up, down. So the other day on the island, I ran into a very wonderful and good photographer. He’s here filming houses and the island and things like that. And we were talking, and he said, “Oh, I invest most of my money in Bitcoin and Ethereum. And what I do, Suze, is like—when it was at 70, I sold out. And then I put the money in stablecoins. And then when it goes down, I buy again, and then I go up, down, up, down. And that’s what I do.”

Now, what he didn’t know is that when he sold Bitcoin, he now owes income taxes on that. And for some reason, he was under the impression that because he went from one coin—Bitcoin—to a stablecoin, it wasn’t a taxable transaction. And I explained to him, no, that’s like selling one stock and going into another stock. That doesn’t mean that you’re not going to be taxed on it. So when you trade anything, you have to take into consideration taxes—especially if it is outside of a retirement account.

For an ETF for Bitcoin, if Bitcoin does go down here—you know I like the ETF IBIT as something that you might want to look into for money that you can afford to lose.

So overall, that is what I think is happening. That is the possible storm that might come our way—but might get diverted. I don’t think that we have seen the lows of these markets on any level here. So I think it’s important that you prepare for a financial storm. But do not let your emotions rule what you are investing in. But you have to be investing, if you have what it takes to do so, in order to in the long run really make more out of less money. It is just that simple.

As I hear the rain pouring down outside of my window right now—and what’s interesting is that even though the storm, the big storm, isn’t coming this way—it doesn’t mean that we’re not going to get showers and wind, and that we don’t want to get soaked. So we stay inside and we prepare.

And that is what I’m asking all of you to do. Just put up your umbrellas and prepare for a possible financial storm by looking into investing the way that I told you in this August 4th edition of Suze School.

So until next week, there’s really only one thing that I want you to remember when it comes to your money—and that is: people first, then money, then things. Now you stay safe and unstoppable.