Podcast Episode - When It Happens… How Will You React?

Listen to Podcast Episode:

In this Suze School episode, Suze reviews this past week in the markets and gives you the guidance for the next year or two and why bonds are coming back in favor.

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Podcast Transcript:

00:00:30

Suze: September 25, 2022. Welcome everybody to the Women & Money podcast, as well as everyone smart enough to listen. Before we begin Suze School, I just want to make sure that I wish a very happy new year. A happy Rosh Hashana to all our Jewish friends out there.

00:00:54

Suze: All right. Are we all ready to begin?

00:01:00

Suze: That was quite the week, wasn't it last week with the stock market. Did you follow it?

00:01:06

Suze: Did you see your statements? Do you look on your computer to see what your money is doing? Maybe yes, maybe no. But if you haven't,

00:01:16

Suze: the market last week had one of its worst weeks and it actually essentially brought it to the low of June of this year.

00:01:26

Suze: Now, many people are starting to say that these markets are going to continue lower.

00:01:33

Suze: That things are not going to get better. Sure, sure. Maybe we could see it go up a week or two next week or the week after that, but the intermediate term, the long-term, people are thinking that it is absolutely possible it could go down maybe another 14% from here. Time will tell.

00:01:56

Suze: But it's also important for you to understand what happened last week, and why? Why did the markets really tank?

00:02:07

Suze: And the answer to that question is very simple.

00:02:11

Suze: The Feds continued to raise the fed funds rate. Last Wednesday was their meeting,

00:02:17

Suze: and Chairman Powell came out and announced to everybody that they were going to raise another three quarters of  a percent to bring the fed funds rate up to about three and a quarter percent, right in there.

00:02:33

Suze: And not only did he say that he said, and

00:02:38

Suze: we are going to continue to raise the fed funds rate

00:02:44

Suze: until inflation goes down from approximately 8% where it is right now, down to two or 3%. And we are not going to stop until that happens.

00:02:58

Suze: That stance said the way that he said it, and I didn't exactly quote him. You should go look him up if you want his exact quote. But that was the essence that was taken away,

00:03:10

Suze: absolutely freaked all the traders and the money people out when it comes to stocks. And why is that?

00:03:22

Suze: It is because when the Feds raise the fed funds rate,

00:03:27

Suze: most interest rates as you've already experienced, go up. Mortgage rates even though they're not technically connected to the fed funds rate, they're technically connected just so you know, to the 10 year treasury, but mortgage rates go up, credit card interest rates go up, interest on your savings accounts go up, interest rate on your credit cards go up, interest rate on everything goes up.

00:03:55

Suze: And why do they want interest rates to go up? Just so you know, because obviously that's what they're doing, it's because the more it costs you to buy something,

00:04:08

Suze: a home, a car, whatever it is,

00:04:13

Suze: you're gonna start to say, I'll wait, I'm not gonna buy it. And the less you buy, the more the economy slows down, and then inflation starts to come down as well. That is a very simplistic explanation, but I think it's one that you understand.

00:04:32

Suze: But the reason that high interest rates are so damaging to the stock market is this. If you can remember just a few years ago, the interest rate on your savings accounts, on Treasuries, even mortgages were essentially nothing.

00:04:52

Suze: The Feds wanted to stimulate the economy. They wanted you to spend.

00:04:59

Suze: So to entice you to spend, they brought interest rates all the way down to zero. So you could buy things that normally you couldn't afford because the interest rate to finance those things was so little.

00:05:15

Suze: But at the same time when they brought interest rates down to stimulate the economy, they also took away any decent interest rate from savings accounts, certificates of deposit, Treasury bill, bonds, or notes.

00:05:32

Suze: Because interest rates were so low, didn't even make sense for you to put money in there. If you needed a return on your money, you couldn't get it anymore in banks or credit unions or Treasury, because they weren't paying you an interest rate. So then what did all of you do? You decided you were going to put your money in the stock market,

00:05:54

Suze: because in the stock market at least you could get dividend yields, you could get growth on your money, the economy was growing, everything seemed really great, and the market went up and up and up and up until inflation reared its ugly little head.

00:06:15

Suze: And then the Feds had to act as they did not believe, if you remember, the Feds kept saying inflation isn't bad we don't need to raise interest rates we’re fine. We have everything under control. They did one of the more horrific jobs of forecasting anybody ever could have done. But that's what happened. All of a sudden they're hit with the fact that inflation is out of control. So now they're having to raise the fed funds rate really, really fast

00:06:44

Suze: in order to get it under control. Then what happened when the Feds started to do that?

00:06:54

Suze: That's when the market started to go down and down and down. And every time the Feds came back on the air after their meeting and they said they're going to continue to raise the fed funds rate by x percent, the markets then maybe went up for a little but then continued on the track of going down and down and down.

00:07:19

Suze: And the reason again that the markets go down is this.

00:07:26

Suze: Because interest rates now are going up and you could get great interest rates, the Alliant Credit Union 18 months CD, fabulous. You should check it out. You could also if you want to tie your money up longer, get 4, 4 and a quarter percent,

00:07:43

Suze: and T notes, all those kinds of things. But we'll talk about that in a little bit. But as interest rates started to go up

00:07:52

Suze: because the Fed started to raise them, everybody and the markets started to go down because people were afraid of the economy, people started to think, oh

00:08:04

Suze: why not take my money out of the stock market, that's maybe a little risky. And get a high interest rate in fixed income investments such as bonds, or Treasuries, or things like that.

00:08:18

Suze: Not only that,

00:08:21

Suze: but what was also very interesting is that we live in a time when we really, really are a global economy.

00:08:31

Suze: And it's not just what happens here in the United States, it's what happens in Europe. It’s what happens in their economy as well.

00:08:41

Suze: So over the past few months, you know that Europe has been having a very hard time. I've been telling you that on the podcast, because of the threat of the cut off of oil and natural gas, because of Russia, and Ukraine, and everybody's support of Ukraine.

00:09:00

Suze: And while that has been happening,

00:09:03

Suze: the euro as well as the pound, their currencies, the euro for most of Europe, the pound for England, has been going down and down and down in value.

 00:09:18

Suze: And that is because people over there have been taking their money, sending it over here to the United States, to buy Treasuries to buy certain things here, making our dollar go up and up and up. So right now we have an incredibly strong dollar,

00:09:40

Suze: and the Euro and pound is going down. Now. I just want you to put a pin in everything I'm saying at this moment in time.

00:09:49

Suze: Do you remember when the euro if you traveled to Europe was way up there, $1. 27. I mean it's been all over the place. Do you know right now if you went to Europe, do you know the euro is only 96 cents on the dollar? Our dollar is worth more than the euro at this point in time.

00:10:15

Suze: So if you went over there and you bought something for €200, it actually would only cost you $193. And with the pound, the pound is the lowest it’s been, I think it’s $1.14, so every pound will buy you $1.14. I remember when it was $1.50 and higher. That’s the lowest it’s been in 37 years.

00:10:37

Suze: The reason I'm also telling you this, so I know I'm sidetracking you but you just have to follow me on everything these days. Is that if you are planning to travel, because so many of you are going over there now and you are traveling,

00:10:52

Suze: just make sure that if you use your credit card,

00:10:58

Suze: that you are not charged money for the conversion fees. If I were you, when I went over there,

00:11:08

Suze: and I wanted to buy something, I would go to an ATM machine, put in my debit card or however you're going to get money out whatever kind of card you may have, and I would withdraw in euros, and then I would pay in cash in euros. That is the most intelligent and cost-effective way to do it if you're going to travel at this point in time.

00:11:36

Suze: Now where the heck was I? Alright, let me go back to what I was saying. Money from overseas is pouring in here.

00:11:46

Suze: Everything is coming here. But not into the stock market, into the bond market. Now I just have to reiterate

00:11:58

Suze: that I think this is a process that's going to stay around for a while. I am very, very aware that a year, year and a half ago I started to say to you get out of long-term bonds, I don't want you in bonds, I don't want you in bond funds and just get out. And hopefully you did. And now maybe you have cash.

00:12:21

Suze: Now what I'm saying to you, little by little,

00:12:25

Suze: you need to start getting back into bonds, into possibly bond funds as well. Not to say that they might not continue down, but when the bond market turns, it turns very quickly.

00:12:42

Suze: And I just have to believe that sooner than later interest rates are going to have to start to come down again, because the feds are going to reach their target hopefully,

00:12:56

Suze: and when they start to come down,

00:12:59

Suze: then the price of your bonds and bond funds will also go up and increase in value. Now I've given you a Suze School on that before, but basically here are two things you have to remember with bonds. When interest rates go down, the value of bonds go up, and when interest rates go up,

00:13:23

Suze: the value of bonds go down. Short term maturity bonds

00:13:30

Suze: don't move as much as longer term maturity bonds. Short term maturity bonds can be one year, two years, three years.

00:13:42

Suze: Long term bonds usually are 20 and 30 years. So the longer the maturity, the more up and down movement it will have, the more loss, the more gain when interest rates move. The shorter the maturity, when interest rates move,

00:14:04

Suze: the less you'll see in terms of the movement of price. So really the less gain, the less loss you will have, especially in comparison to long term bonds or bond funds.

00:14:20

Suze: So my original advice to you came when interest rates were at zero, and they had no place to go but up.

00:14:28

Suze: Now interest rates are up, and they're probably going to go up a little bit more, so again, might want a dollar cost average.

00:14:37

Suze: But I've now changed what I've told you

00:14:42

Suze: about bonds.

00:14:44

Suze: How many of you have written in, and asked me to do an entire podcast on how to buy Treasury bills notes and bonds? And I told you that I absolutely would do that. And in fact, I thought today's podcast was going to be all about that until the stock market really just sank so bad last week, it wasn't even funny.

00:15:14

Suze: But it was brought to my attention

00:15:17

Suze: that there is a YouTube out there by a woman that goes under Diamond Nest Egg. So if you go to YouTube, search for Diamond Nest Egg, that she has an extraordinary video on how to buy T-bills, T-bonds, and T-notes.

00:15:39

Suze: And so I went to it and I watched it and I have to tell you she did the most incredible job. I mean I don't know her, she doesn't know me, she doesn't even know I've watched her video. And I start watching other videos of hers, she has them on I bonds, she has all kinds of videos on bonds.

00:16:01

Suze: And I loved them. And I realized that for you to really understand how to buy a Treasury bill, bond or note whether it be at treasurydirect.gov or at a brokerage firm, you need to kind of visually see how to do it.

00:16:20

Suze: And given that this is a podcast that even if I just explained it to you,

00:16:26

Suze: her explanation of how to do it is so great, it's not even funny.

00:16:32

Suze: On the Women & Money app which you, by the way can download by going to Apple apps or Google Play,

00:16:41

Suze: on the wall there I will link to this particular airing of her YouTube channel where she shows you how to buy T-bills, bonds and notes. If you don't want to go to the app to do it, fine go to YouTube, and again search for Diamond Nest Egg. And see among all of her videos, search for it and you will find this one.

00:17:07

Suze: But I have to tell you after you watch it, you will really know how to buy t-bills, bonds and notes, either with a brokerage firm, or on treasurydirect.gov. Now you know.

00:17:26

Suze: You know the other day I gave an audio seminar for the AARP. And the moderator Neil asked me a question and he said Suze, a lot of our members want to know as you're getting older, what is the correct asset allocation for them?

00:17:49

Suze: So if they're older, should they have 70% in bonds and 30% in stocks, or what is the correct asset allocation?

00:17:57

Suze: And I said, I don't believe in asset allocation. I believe in diversification, but not asset allocation. Again, if you don't know, asset allocation is, you decide you're gonna have 30% of your money that's safe and sound, maybe in bonds, you're going to have 50% of your money for growth in stocks, so you're getting an amount of money, and you're allocating it towards a certain type of asset.

00:18:26

Suze: that asset could be real estate, stocks, bonds, cryptocurrency, gold, things like that.

00:18:35

Suze: And there are rules of thumb that the older you get, the more you should have safe and sound in bonds. Because bonds supposedly don't lose money. Alright.

00:18:48

Suze: And I said, I don't believe in asset allocation, I believe in economy allocation.

00:18:55

Suze: I invest according to what's happening in the economy.

00:19:00

Suze: It's not a judge that determines what you should do with your money, it's how much money do you have? Do you have enough? Do you not have enough? Does your money scare you? Do you enjoy investing? It matters based on you and what's happening in the economy at the time that it's happening.

00:19:19

Suze: And when interest rates are at zero,

00:19:23

Suze: that in my opinion isn't necessarily the time to stay invested in bond funds in particular.

00:19:31

Suze: Because if interest rates go up, and they always go up and they always go down,

00:19:36

Suze: if they go up, the value of your bond fund is going to go down.

00:19:42

Suze: So a year, year and a half ago, whenever I started, it was obvious what was going on. That's why I said I don't like them.

00:19:50

Suze: However now interest rates are starting to go up, I know I'm repeating, but the economy is dictating how we should invest, and bonds are coming back in favor. That was a very short edition of a Suze School for that.

00:20:08

Suze: But I think it's very important that you understand why I'm asking you, to number one pay attention, to really set your parameters because I do think it's going to be a very tough year or two, I do think again you might see short term spikes, but I think in the long run you have to be careful.

00:20:33

Suze: You know, I just want to say one other thing, and by the way if you want to listen to that webinar that I did with AARP, it is online, all you have to do is go to AARP.org/coronavirus. I know.

00:20:53

Suze: They started those seminars webinars or whatever they're called back during the pandemic. And I think they have them every two weeks. But I thought it was a very very interesting session, and one that I think you really should listen to.

00:21:09

Suze: Because AARP really right now is fighting for your social security, for health, for all kinds of things. I like them. Obviously they don't know that I'm saying this, I was not paid to talk for them. It's just an organization that I think has resources that could possibly help you. If you want to listen, now you have the URL that you can do so.

00:21:34

Suze: Back to the question at hand, which was and somebody called in and they said to me, you know Suze I have money in the stock market and it's going down.

00:21:46

Suze: And

00:21:48

Suze: I want to possibly do an IRA rollover with it. I'm retiring but I don't want to lose money. And I'm afraid that if I sell anything right now that I'll never make it back. And so I'm just totally lost at what I should do. I don't want to lose money.

00:22:07

Suze: You know, I have a saying everybody that it's your profound fear of loss that keeps you from gain.

00:22:14

Suze: You have to look at your situation, and you can't think to yourself, oh my God, if I sell now, I'm never going to make my money back. And I am not telling you by the way to sell right now. But there are some of you out there who do need the money that you have invested in the stock market.

00:22:34

Suze: And you're gonna need it maybe in the next year, two or three. And I will repeat this till I'm blue in the face, that money that you need in a short period of time is not money that belongs in the stock market. Not here, not now, not ever.

00:22:52

Suze: And so this is not the time, if you're retiring and you need that money, and what is it when I mean need it? You need it to send your kids to school. You need it to pay off your car loan. You need it to maybe pay down your mortgage. You need it to fix up your house because your windows are leaking and winter is coming. You need it for something. And you're going to actually use it.

00:23:20

Suze: That is not money that belongs in the stock market if you are going to use it within a 1 to 3 year period of time. Back to that your profound fear of loss keeps you from gain.

00:23:33

Suze: You can't just say

00:23:36

Suze: I don't want to lose money, it'll come back. Hope is not a financial plan. Many of you still have stocks out there,

00:23:45

Suze: and you are in retirement. Or you really are gonna need that money. You have to look at it and again you have to make a decision what you want to do.

00:23:56

Suze: But I would not be holding onto stocks that your intention is to sell, just because you think they're going to come back in a relatively short period of time. I hope they do. I hope they do for all of us.

00:24:12

Suze: I don't think I would place money on that bet. So don't be afraid to take action, and do something that moves your money to somewhere that is safe and sound.

00:24:25

Suze: I was so sad for this woman that called in, because I can relate that most of you are probably in that situation. Again, I'm just gonna give you a brief guideline, if you're young, you're 20, 30, 40 even 50 or 60 and

00:24:46

Suze: you are still working. You intend to work for another 5, 10, 15 years or longer, and you're contributing to a hopefully Roth 401k or 403b or TSP and or a Roth IRA,

00:25:04

Suze: and you're putting money in every single month, this, what's happening in the stock market right now, is your greatest gift you have ever been given. Because these prices are down so low, that honest to God, things are on emergency sale, and they're probably gonna go lower. So if you keep dollar cost averaging, and you just keep taking advantage of it,

00:25:32

Suze: good for you. Do not stop, just make sure you are diversified. But if you are older, you're 70, 80, you're invested in the stock market. You see your retirement accounts going down and down and down,

00:25:50

Suze: and it's keeping you up at night,

00:25:54

Suze: and you are just totally getting sick over it, I'm here to tell you that money is not worth you getting sick over.

00:26:04

Suze: Do you then decide I'm out, I don't want this. Or, what amount of money that's in the stock market would you sell to make you feel secure? Now I went to 50% in cash, and I think I told you that a month, two, or three ago. Because even though I have money,

00:26:27

Suze: I didn't like it. I didn’t like what I saw, so I went to 50% in cash, and I took my chances there.

00:26:36

Suze: Maybe that's what you do. Because it made me feel secure.

00:26:42

Suze: It made me feel secure. Maybe that's what you do. Do you take some of this money,

00:26:51

Suze: and do you take 25% or some amount that would make you feel secure, and just go to cash. Now remember when I say go to cash, you might want to take some of that money and do what? Go into bonds, go into Treasury notes, go into long term bonds or dollar cost average into them over time,

00:27:16

Suze: so that you're getting a good interest rate, and that when in fact interest rates do go down,

00:27:23

Suze: the value will go up. Now, I just have to say something here.

00:27:27

Suze: So many times people think, the only way to make money is in stocks. That is not true.

00:27:37

Suze: When you can catch bonds at a time when interest rates are going down,

00:27:44

Suze: then you can also make money in bonds just so you know. And while the stock market is fluctuating, you're still making an interest rate. So it's just something that you need to think about. And that's how you decide what to invest in based on the economy, going back to this, versus asset allocation by age. Did that make sense to you?

00:28:14

Suze: I know that's not a lot of advice that I can give you, but more than money and what you should do with money,

00:28:22

Suze: it's what do you do to make yourself feel secure? That is the question at hand. And that is why the Suze School also is so important. Because with knowledge, with understanding why something happens and when something happens, what happens and when that what happens then what happens until

00:28:48

Suze: this happens or that happens and how do you react? So that you know what's going to happen versus just getting hit off guard.

00:29:00

Suze: That's why it's so important.

00:29:02

Suze: So that you can be secure in your knowledge,

00:29:07

Suze: and secure in how you feel in your situation. Money will come and money will go,

00:29:15

Suze: and you will figure it out. But if you are scared to death,

00:29:22

Suze: it's just not worth it.

00:29:26

Suze: So today is Sunday.

00:29:29

Suze: And tomorrow is Monday, and then Tuesday, and on those days, it was projected that we were going to be hit by Hurricane Ian. And it was absolutely coming straight for us. And for now, just so you know, don't worry about it. For now, it has shifted, and we are totally out of the comb.

00:29:57

Suze: But while it was heading our way, we had to prepare for it. We had to make sure that we were secure. That we had a plan.

00:30:08

Suze: That, where are we going to stay, where we going to leave? If we were going to leave, where should we go? Because the hurricane could go anywhere. So where would we go to be safe? And as I think about it, it's a lot like what I've been asking you to do with money right now.

00:30:28

Suze: You have to know, are you secure? And if you're not secure, what can you do to make yourself feel secure, which is obviously the goal of money. You have to make decisions, you have to make moves. And you have to make sure that those decisions and those moves are ones that make you feel secure.

00:30:53

Suze: Alright. Until next time, there's only one thing that I want for you and your money, and it's for you to be safe, strong and most important, secure. See you soon. Bye bye.

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