Podcast Episode - A Safe Alternative To Get You Where You Want To Go


About Suze, Interest Rates, Investing, Podcast, Saving, Saving Money


October 15, 2022

Listen to Podcast Episode:

In this episode, Suze starts with a story about almost being stuck at sea.


Podcast Transcript:

00:00:32

Suze: Saturday October 15th, 2022. Suze O here. Now are we liking Saturday nights, Saturday evenings? I'm not exactly sure... you know I am a Gemini,

00:00:46

Suze: I may just change it back to Sunday mornings or something about early mornings that I kind of like better. So we'll see what I do. But either way we'll figure it out. But I have a story to tell you.

00:00:59

Suze: So today,

00:01:01

Suze: early in the morning, today, Colo, KT and I looked out the window and we could barely see because the sun was not up yet.

00:01:12

Suze: But normally when we open our doors, if the seas are rough, you can hear the waves crashing on our beach.

00:01:23

Suze: But if it's really smooth and beautiful out there, you don't hear anything.

00:01:31

Suze: And that is what we heard this morning. We heard nothing.

00:01:38

Suze: And we looked at each other and we said, let's go wahoo fishing now. For those of you who don't know, KT Colo and I are avid Wahoo fisher people. And Wahoo is a fish that is usually about 35 to 60, 70, 80 pounds. That swims at 60 miles an hour and you really have to know what you are doing to catch them.

00:02:07

Suze: And they are delicious eating fish. Please know everybody. We only catch fish that we eat. KT, Colo and I live on an island. We feed ourselves with what we catch. And we also feed all the Islanders on this island that work here.

00:02:24

Suze: So we get so excited because wahoos come in seasons meaning from about October to February is when you can catch them after that they are gone. So this was going to be the first time this morning that we go out and try to catch a wahoo. Alright.

00:02:45

Suze: We get in the boat, the poles are ready to go,

00:02:49

Suze: and now I'm even well enough to drive the boat because you know, I am really the captain of the boat. But anyway, that's another story. And we go out to a depth of 350 ft and then you just start going at about 15 mph until you catch one.

00:03:10

Suze: Now sometimes you have to travel a long distance, you can go 9 miles, 10 miles 20 miles away, you're going far sometimes to catch these fish, you're trolling for them.

00:03:25

Suze: And here we are out on the boat, probably about 10 miles away from our home.

00:03:33

Suze: And now KT is driving

00:03:36

Suze: because my arms started to hurt a little bit. So I was thinking, you drive now KT, KT is driving and all of a sudden she looks at us and says,

00:03:46

Suze: the steering wheel isn't working and I'm like, what are you talking about? She goes, look Suze, I'm turning the steering wheel and the engines aren't moving.

00:03:58

Suze: So then I jump in and I try and it's not moving for me, Colo then comes and it's not moving for him. And we're like, what the hell? We have absolutely no staring ability with the wheel

00:04:12

Suze: on the boat.

00:04:14

Suze: We slow down the boat to where it's not moving at all. And I say Colo check to see if we have fluid in the steering column in the back there. And so he opens up the cockpit and of course there is no steering fluid. But because we do things very safely, we carry extra fluids with us. So he fills it up and again

00:04:41

Suze: everything is fine. The boat is going and KT says, okay, let's continue to fish. And I'm like, no way we are going back something isn't right with this boat.

00:04:53

Suze: So now we've turned it around and about 10 minutes into the trip back we lose seering again. Colo opens up the cockpit and the bottle that contains the fluid is empty again.

00:05:08

Suze: So we obviously have a leak and it's a really bad leak. And there's really nothing we can do about it at that point because it's not even holding more fluid. We look at each other and now, thank God we have two engines, we were able to get the boat back all the way onto our dock by maneuvering the two throttles

00:05:36

Suze: that control the engines. Now, even though the engines weren't turning, how you did the throttles back forth and everything could make the boat turn.

00:05:48

Suze: And now to get back to our little island, you have to go through what's called a cut, you have to go into this very narrow place where there's coral on one side and rocks on the other side and usually

00:06:02

Suze: there are big waves in there. So it's not easy to go through.

00:06:07

Suze: And somehow when we got there it was very calm. So we were able to go through it and dock the boat.

00:06:17

Suze: So now we've looked at the boat, we know what's wrong with it, and a new part is coming tomorrow for us to replace.

00:06:25

Suze: Now. Why am I telling you this story?

00:06:30

Suze: Because I was thinking how lucky were we that we had a safe alternative to get back to where we needed to go.

00:06:42

Suze: And then I was thinking that's exactly what we all need when it comes to our money. Sure, sure we could all invest in the stock market and dollar cost average and hope that these markets go up or do whatever eventually.

00:06:59

Suze: But we also should have an alternative to make sure that we always get to where we want to go.

00:07:09

Suze: That's why I'm telling you this story.

00:07:12

Suze: So what are the alternatives that will get us to where we want to go? So let's just start first of all with Series I bonds. As you know, and I know I've been bonkers about Series I bonds now really for years.

00:07:32

Suze: And the reason that I love them so is because Series I bonds stands for inflation. That's what the I stands for. And we have been in an inflationary environment now for quite some time.

00:07:47

Suze: Series I bonds are made up of two components. They're made up of the inflation component, so every six months inflation changes and that interest rate changes and they're made up of a fixed portion. That never changes. Currently that fixed portion is at 0%.

00:08:11

Suze: And it's at 0% because since I bonds came out years and years ago interest rates went up and when they first came out, the fixed interest rate by the way was 3%. Then as interest rates started to go down.

00:08:27

Suze: They offered a 0% fixed interest rate and the inflation rate was down. So at that point, nobody really wanted Series I bonds. Starting a little bit ago when inflation started to go up, they became very popular again. What you need to know about a Series I bonds

00:08:47

Suze: is that when you invest in them, the only way to buy them is through TreasuryDirect.gov. You cannot buy them at a bank, you cannot buy them at a brokerage firm. Only through TreasuryDirect.Gov. Also you have to know when you buy a Series I bond for the very first year, you cannot touch it. No matter what your money is locked up.

00:09:14

Suze: Years two through five, there is a three-month interest penalty. And after five years all the way till the 30th year you can take out any amount of money you want

00:09:26

Suze: without any penalties whatsoever. You should also know that there is no state income tax on the interest that you earn. And the interest is tax deferred until you actually take a withdrawal from the Series I bond that you purchased.

00:09:47

Suze: Next. You need to know that I bonds come in any denomination above $25 all the way up to $10,000 per person. So if you are married for instance, you could put $10,000 max in your name, $10,000 in your spouse's name, that's $20,000. Also if you have a revocable living trust, you can put $10,000 in there.

00:10:17

Suze: In addition, if you have a business you could put $10,000 in there. So it is possible between you and your spouse. You could easily, if you had the money, put $60,000 a year into a Series I bond. Now, why would one want to do that?

00:10:34

Suze: They would want to do that because currently interest rates change every November one and May one.

00:10:44

Suze: Last November, the interest rate was set at 7.12%.

00:10:51

Suze: Then this May just a few months ago,

00:10:55

Suze: and that interest rate changed to 9.62%.

00:11:00

Suze: And now starting in November first of 2022. Just a few weeks from now, the new interest rate again will be 6.48%. It is going down from where it is right now. Now what you need to understand about Series I bonds is that the interest rate is quoted on an annualized yield,

00:11:30

Suze: meaning that if they didn't change interest rates every six months, that's what you would get for the entire year.

00:11:38

Suze: But because they change every six months,

00:11:41

Suze: you only get half of the quoted annualized yield. So if you were to buy a series I bond right now at a 9.62% annualized yield, you actually would only get 4.81%

00:12:01

Suze: for the next six months. After that

00:12:06

Suze: you would only get 3.24%, which is half of 6.48%, the new rate starting November one for the next six months after that. Now that may seem like a low interest rate to you. But when you actually do the calculations, if you were to purchase an I bond right now,

00:12:30

Suze: Your annualized yield would actually be 8.21%.

00:12:38

Suze: Now. I don't know about you, but I think 8.21% is a fabulous interest rate.

00:12:48

Suze: Why in the world wouldn't you want to do that? I don't know what you need to understand. However, this if you want to do it. You need to do it now because treasurydirect.gov, their website is totally archaic and even though they did a little website update,

00:13:12

Suze: it looks good, but it still functions horribly. So it is possible that you would go to buy one and it might take you a week or two to actually purchase one, or longer. So please do not wait till the end of this month because if you go to buy one and you want to lock in that 9.62% annualized yield, you may miss it and only get the 6.48% rate as of November one.

00:13:41

Suze: One of the reasons why TreasuryDirect.gov is so overrun is, do you know that in 2020 for the entire year only $364 million of I bonds were purchased? Do you know from November 2021 till now, $27 billion of I bonds have been purchased?

00:14:09

Suze: And Treasurydirect.gov in my opinion really can't handle that kind of volume and the phone calls and everything because there's so many questions that people have about series I bonds.

00:14:24

Suze: The other thing you need to know is that it is possible to gift an I bond to as many people as you want for any amount of money up to $10,000. The problem is when you go to Treasurydirect.gov right now and you try to gift an I bond, the site is down now. I don't actually get why the site is down

00:14:50

Suze: but you should keep trying if this is something that you want to do and hopefully they will get it up and running sooner than later.

00:14:59

Suze: One other thing is this.

00:15:02

Suze: A lot of people are asking Suze, should I buy an I bond now or should I wait till November 1?

00:15:12

Suze: I want you to buy them now. I know there are some finance people out there that are saying you should wait till November first because it is possible that come November 1,

00:15:25

Suze: that I bonds may have a 1% fixed rate attached to it versus the 0% rate that the I bond has right now for the fixed rate. I personally don't care.

00:15:38

Suze: I don't think that 1% will make any difference, and I don't think that 1% is going to happen. I'll be shocked if Treasurydirect.gov actually gives a fixed interest rate. Maybe yes, maybe no. But the plan is this:

00:15:58

Suze: You buy your I bonds now and lock in these rates for the next year. Then if let's say a year from now, a year and a half from now you decide, oh Series I bond rates are renewing at 2%.

00:16:17

Suze: That's a little low. Suze, I don't think I want to renew at that rate. I think I might want to take my money out,

00:16:24

Suze: and maybe go back in the stock market or maybe buy Treasuries if interest rates are equal or whatever it may be.

00:16:31

Suze: Remember that years two through five, there's only a three-month interest penalty.

00:16:39

Suze: So if the new declared interest rate, let's say May 1, is only 3%

00:16:47

Suze: but remember that's a 3% annualized yield. So over a six-month period, that would be 1.5%. If the interest penalty to get out is a three-month interest penalty, that would be a .75% interest penalty. If the annualized yield was 3%, I don't know what the rate is going to be

00:17:16

Suze: in May. But what's interesting is that the rate dropped from 9.62% that was declared last May to 6.48%. That's essentially 3% points to November 1st this year. It could drop another three come May. Who knows? But if that were the case, if you just waited

00:17:41

Suze: those three extra months rather than coming out exactly after one year, just stay in there for 15 months.

00:17:49

Suze: Then you would pay about an $81 interest penalty to come out.

00:17:56

Suze: I don't know, I think that's worth it. You're still making a seven some odd percent yield on your money even after the interest penalty. And then you have access to your money. So I would not wait to buy till November. I would absolutely do it right now. One last thing. Remember when I say you can only buy up to $10,000 per year per person? That's in a calendar year.

00:18:25

Suze: If you happen to make a purchase right now, and let's say you invest $10,000. Come January 1st, you could buy another series I bond

00:18:38

Suze: and keep going like that.

00:18:40

Suze: So that's what you need to know. I believe from the bottom of my heart, that Series I bonds will get you in a very safe way to where you need to go.

00:18:56

Suze: However, there may be many of you out there who have already maxed out on I bonds and you're like Suze, I get it. But what else? What else is there if I want to do something?

00:19:12

Suze: Now before I tell you my other thing that I want you to do,

00:19:18

Suze: I want to go to Suze School a little bit here and I want to just tell you that many people now, many analysts are projecting that over the next 2,3,4,5 years or longer,

00:19:32

Suze: we probably will only average an annual average rate of return of about 4-4.5%.

00:19:42

Suze: All of us got used to over these past years before 2022 averaging about a 10% annual average rate of return.

00:19:53

Suze: So we got used to that.

00:19:55

Suze: So I want you to understand the difference between an average annual rate of return

 00:20:04

Suze: and an interest rate because that is key for you to keeping your money safe and secure. Now. The best way for me to illustrate this is through a test that I've given you before. But I'm sure many of you either don't remember or you never took it. This will illustrate it for you.

00:20:28

Suze: And I learned this way back when. When I was a stockbroker working for either Merrill Lynch or Prudential, I can't remember. And dot com everything was going crazy.

00:20:42

Suze: And the market went up 80% in one year.

00:20:47

Suze: And then it went down 50% the next. Okay? And I was listening to a financial advisor make a sales call,

00:20:59

Suze: And they wanted somebody to invest with them in technology, in  dot com, in all of that Internet. Alright. And here's what they said to them. You would have been up 80% last year,

00:21:16

Suze: but this year you would have been down 50% but you're still would have been up 30%.

00:21:26

Suze: And I'm sitting there thinking,

00:21:28

Suze: I don't think so.

00:21:30

Suze: And he made the sale. Absolutely the person he was talking to said okay I'll buy.

00:21:36

Suze: So here is your quiz.

00:21:40

Suze: You have $10,000 that you want to invest,

00:21:46

Suze: and you have a choice,

00:21:48

Suze: you could get guaranteed to you 5% today,

00:21:54

Suze: and one year from now, another 5%.

00:21:59

Suze: Or you could be guaranteed a 80% gain,

00:22:05

Suze: and a 50% loss, which as this financial advisor said is still a 30% gain. Which one do you want?

00:22:16

Suze: I'll let you think about it for a second.

00:22:19

Suze: Now. Probably because of how I got into this conversation, you know you should take the 5%.

00:22:26

Suze: The numbers go like this. You invest $10,000 and at the end of one year you have $10,500.

00:22:35

Suze: Now you get another 5%.

00:22:38

Suze: So $10,500 at 5%. Interest is $525. So now at the end of two years you have $11,025 to your name.

00:22:54

Suze: Not bad.

00:22:56

Suze: Again that 5% is interest.

00:23:00

Suze: You have $10,000 which is guaranteed to make 80% the first year. So that's $8,000 of gain. So now you have $18,000.

00:23:12

Suze: However the second year,

00:23:15

Suze: you are guaranteed to lose 50%.

00:23:19

Suze: But 50% of $18,000 is $9,000.

00:23:26

Suze: So your annual average rate of return, you've actually lost money versus making money with interest

00:23:36

Suze: such as the Series I bonds, such as Treasury Bill bonds and notes, such as certificates of deposit, such as what you get at Alliant Credit Union, which currently is paying 2.2% or wherever. You bank your principal, stay safe and sound, nothing can ever happen to your principal. So the interest just compounds upon itself.

00:24:03

Suze: When you're talking about annual average rate of return,

00:24:09

Suze: maybe one year you make 20%, the next year, you lose 15% the next year, you get 13%, the next year you lose 10%,

00:24:21

Suze: you're up, you're down and you get an average annual rate of return. When you do all of the numbers,

00:24:29

Suze: you can do things that way. But given where we are in the economy,

00:24:35

Suze: given where we are politically speaking, given where we are with inflation, because obviously the increases in the Fed funds rate hasn't done anything to help inflation, eggs and butter are up 30% over a year ago. It is very possible that you might see gasoline prices start to go up.

00:25:03

Suze: We have not tamed inflation on any level, which means that the Feds are going to continue to raise interest rates. It is very probable that maybe by April of next year, the Fed funds rate could be at 5%. We’re at three and a quarter right now.

00:25:22

Suze: When it goes up that much, and let's just say it does,

00:25:27

Suze: there goes interest rates up on your savings accounts, on your credit cards, mortgages eventually get infected. As I'm recording this today, we're back up at almost 7% for mortgages again.

00:25:42

Suze: So we are at a period of time,

00:25:45

Suze: where is it possible that you could have a safe alternative

00:25:52

Suze: that will give you a 4-5% return safely or more. Look at Series I bonds right now or more

00:26:02

Suze: as an interest rate versus an annual average rate of return. Are you following me?

00:26:11

Suze: So is it possible that many of you may be better off right now going that safe alternative route versus more and more money into the stock market?

00:26:28

Suze: Maybe yes, maybe no. It all depends on your length of time, how comfortable you feel,

00:26:37

Suze: and is this a safe alternative that might just return you as much as the stock market over the next few years? If some analyst projections are correct that it's only going to go up, if it goes up at all to about 4 4.5% as an annual average rate of return,

00:26:58

Suze: maybe yes, maybe no.

00:27:02

Suze: Again, I want to talk to you about Treasuries. Now, I've been talking to you about Treasury bills, notes and bonds for a while and I still do not think that it's time to buy long term treasury bonds. I would not be buying 10 years or 20 years or 30-year bonds at this point in time. I would be buying however,

00:27:25

Suze: possibly Treasury bills at three months or six months or notes at one year, two year or three year.

00:27:31

Suze: Because I do think it is possible that interest rates on Treasuries could very well still go up maybe even to 5%. Who knows.

00:27:44

Suze: Now, I told you that a week or two ago, whenever that was, I put money in to a two-year treasury note at 4.15%.

00:27:55

Suze: Right now, if I were to do it, it would be at almost 4.5%.

00:28:01

Suze: Now, I didn't put all of my money into a two year note at that time. I'm staging into them as interest rates go up. I put more in. If interest rates start to come down,

00:28:15

Suze: alright, then I'll stop investing in them.

00:28:19

Suze: Many of you may want to consider what I call a Treasury ladder.

00:28:26

Suze: Maybe, let's say you have $5,000,

00:28:29

Suze: maybe you want to put $1,000 into a three-month Treasury bill. They're paying 3.72% right now, or $1000 into a six month one, they're paying 4.3 to 2% right now, maybe you want to put $1000 into a one year which is paying 4.459% right now, or $1000 into a two year that is paying 4.496% right now.

00:29:00

Suze: And maybe $1,000 into a three year that's paying 4.5% right now.

00:29:08

Suze: If you did it that way

00:29:11

Suze: and interest rates continue up in three months, you have $1000 maturing. And so maybe you want to buy another Treasury at a higher interest rate going out a little further, maybe then six months you have another one maturing,

00:29:27

Suze: a year from now you have another $1000 maturing, and you can keep rolling that money over, and you might decide with $1,000 that's up in six months, I'm gonna buy another one year at a higher rate. And if rates start to go lower, then you just don't buy again, and maybe there's something better for you to do with the money at that time.

00:29:55

Suze: I have to tell you, I do not think that that is a bad alternative to any kind of investment right now.

00:30:06

Suze: You know, I think if you have a lot of time on your sides and you continue to dollar cost average and you're in dividend paying stocks, hopefully everything will be okay. But I honest to God do not know. Is that in two years from now, three years from now, five years from now? When is that going to happen?

00:30:29

Suze: I don't know.

00:30:31

Suze: But I do know that all of you need a safe alternative to get you to where you want to go. And given that it is very possible that they’re same on average, maybe we're only going to have 4, 4.5% annual average rate of return over the next few years, if that.

00:30:52

Suze: Why not just get it yourself by buying a Treasury bill, note or not yet a bond? Okay. Now a lot of you write me and you say, but Suze, I really don't know how to buy Treasury bills, notes. I don't know how to do that.

00:31:12

Suze: There are two ways to do it. You can go to Treasurydirect.gov and if you already have a Series I bond account there, just look up Treasuries and buy what you want. You'll sign up for it. You don't have to put in an auction price. You don't have to do anything like that. And you can do it there for as little as $100 if you have at least $1000 to invest.

00:31:38

Suze: You can buy a treasury through a brokerage firm. You can buy it through Schwab, Fidelity or Vanguard. And I'm sure others. Now there are two ways to buy it through a brokerage firm. You buy it on the secondary market, or you wait till there's a new issue. It's not a big deal.

00:32:00

Suze: Now. There are many people that I like that are on the internet and I want to spread that love. And there is a website called thefinancebuff.com.

00:32:13

Suze: So go to thefinancebuff.com and then look around and just search for an article about how to buy Treasuries. We’ll put the exact link on the Women & Money app on the wall as well as in the notes of this podcast.

00:32:34

Suze: But again, I think we all need a safe alternative to get us to where we want to go.

00:32:44

Suze: I'm gonna repeat here. These are hard times and it's very possible that this market may zoom up again. Remember last week I said, don't be surprised if you see the market go up this week this last week and it did. And I kind of suggested, and if you needed to get your money out of the market, that it might be the time to do it.

00:33:07

Suze: However, who knows if you did or you didn't. But when I say you need to get it out of the market, there's money that you have invested and you have to use it within a year or two or so, that is not money that belongs in the market. So when the markets go up you need to get it out, do not just go. I'll wait till everything returns, because it may or it may not.

00:33:31

Suze: And it wouldn't surprise me by the way if over the next week or so, maybe you see it go up a little bit again, or maybe a lot. Who knows? But by all means, I don't think it's going to stay up there. I think you will see it come back down. The same thing with energy stocks. Everybody, don't be surprised to see your energy stocks go down,

00:33:56

Suze: And therefore will they come back up. Only time will tell. At least we're getting paid a nice dividend to wait and see.

00:34:04

Suze: So that's why again, it's important if you are investing in stocks or exchange traded funds or whatever it may be that you just wait to put your money in at times when these markets have gone down.

00:34:21

Suze: You know, don't do it when the market's up 800 points in one day. But if you see something starting to trend down,

00:34:29

Suze: just watch where it goes and just see. And if you still want to participate in it, do so. But remember all the things we talk about on the Women & Money podcast. This is not where we are saying to you, if you have a large lump sum of money, put it in. This is very small amounts that you are doing little by little if at all. Because maybe you're going to decide

00:34:55

Suze: to take a safe alternative to where you want to go.

00:35:01

Suze: So that is what the Suze School is about today. There is one thing I want to say however as well, because I always like to update you on things, is that the beta site for student loan forgiveness applications is live now. Why do I call it the beta site? Because they're still testing it.

00:35:25

Suze: So you can fill out your application in there. But nothing is going to happen for at least a month or so until they actually make the site active. But if you want you can go in. Now they'll use you as a tester. But when the time comes, your application will already be in there. So that's something that you might want to do.

00:35:49

Suze: The way that you get there is you go to studentaid.gov/debt/relief/application. I will put that for you in the Women & Money app as well as well as put it in the notes of this podcast.

00:36:11

Suze: The other thing I want you to know though and I've said this before when it comes to student loan forgiveness, is there are many legal objections to this. And hopefully by Wednesday or Thursday of this week. This coming week,

00:36:26

Suze: a judge may rule on, will he or she stop this or will he or she let it go and continue on. So we need to watch it carefully. Because maybe you'll get to get the forgiveness and maybe they will block it.

00:36:43

Suze: So you just have to wait and see. All right everybody, until next Wednesday night with Ask Suze and KT Anything. There's really only one thing that matters and it's for all of you to be safe, strong, and secure. All right, everybody see you soon. Bye bye.


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Suze Orman Blog and Podcast Episodes

Credit & Debt, Saving, Investing, Retirement


Amazon Freevee Brings Back The Suze Orman Show With an Exclusive Licensing Deal

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Suze Orman Blog and Podcast Episodes

Saving, Investing, Retirement


Podcast Episode - Ask Suze & KT Anything: Money Matters of The Heart

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