Debt, ETFs, IRS, Life Insurance, Student Loans, Taxes
April 30, 2020
Listen to Podcast Episode:
In this podcast of Ask Suze Anything, Suze answers questions from Women & Money listeners Missy, Lucy, Audra, and Carmen.
April 30, 2020. Hello, everybody. How are you doing today? All right, we're about to close out another month, can you believe it? That brings us to almost two months, a little bit over two months since all of this happened. And doesn't it seem like it's been a lifetime already? Anyway, welcome to the Women and Money podcast as well as the men smart enough to listen. First of all, I just have to thank all of you for joining the app, the Women and Money Community app, thousands and thousands of you have joined, and we're kind of having fun together there. And for those of you who don't know what I'm talking about, listen up very quickly. I created an app with my friend, Sarah, a Women and Money app, and you can access this app by simply going to Apple Apps or Google Play, search for Suze Orman, and that is where you send in questions, and if they're chosen, I will answer them on the podcast. But you can do so much more there than just simply ask questions. You could find answers to probably almost any question that you have by either being able now to search all the podcasts that I've done and a transcript will come up, or look through all the questions that I have personally answered over the past year or so. And I'm sure you're going to find your answer to your question there. So, then you don't have to wait to see, is Suze going to answer my question or not? We also do live streams, and the other day I finally figured out how to do it. I went on in, 500 of you popped on, and it was kind of fun. We have fun there and I answer some of your posts and things like that. So, I'm very active on this app, so why don't you check it out? Today is Ask Suze Anything so I am going to be answering questions that I have gotten off of the app. But before I do that, I just want to address the stock market for a second. I know, I know, I know I said I'm not going to just do that all the time. I just have to do it today and the reason that I have to do it today is that yesterday, once again, the market surged. Do you know that, for instance, the Dow Jones Industrial Average is up 34% from its low? Can you even begin to believe that? The indexes are up almost 12% or 13% just in April alone. And for some of the indexes, they are going to have the biggest gain that they have ever had in one time since 1987 for some of them since 1974 for others. So one has to ask, what the heck is going on, Suze Orman? I don't have a job, I still can't go out. Things, they're starting to open up, but they haven't opened up yet. What should I do? And why are these markets going up and up? Well, let's talk about this just for a second, because this is the great mystery of the stock market, which is why you never can sell at the top and you can never buy in at the bottom because the market is dictated by human behavior. Do humans want to buy stocks? Do humans want to sell stocks? And since nobody can understand human behavior truthfully, if you think about it, the market is not predictable as much as everybody thinks it is. So the other lesson that should be learned here is that there is a tremendous difference sometimes, not always, between the economy and the stock market, because the economy really is struggling. But the stock market, especially many of the stocks on the stock market, are coming in with all-time earnings, and they are just zooming. They're going up and up and up. What really kind of triggered everything today is that there's a stock, Gilead, who has a drug by the name of Remdesivir, I can't ever really pronounce that, that it seems that it is helping the virus. And any good news, it's not a vaccine, but it helps, any good news sparks this market up, so you're all feeling great right now. Some of you I know are feeling horrible because you sold out at the bottom even though I tried to get you not to, you still did. And you don't know what to do. You just oh, do I get back in? I missed it, oh, my God. And some of you really still don't know what to do because it's gone up so fast and you're confused. But here's what I really want to say to you. Warning, warning! I know everything looks like it's great right now and all of you are feeling fabulous now because you're seeing your 401k statements, well not all of you but some of you, you're seeing 401k statements and your retirement accounts and other things that you have, have come back. You're almost even. Some of you, as I've said before, may even have a gain. But the reason that I'm warning you about this is this is not the time for you to be chasing stocks. This right here is not the time for you to go, OK, I got out of the stock market, now I'm going to get in and you get in with everything that you have. Not here, not now. It would not surprise me if the middle of May, May 15, May 16, if you saw these markets totally retreat again. It would not surprise me if that happened. So once again I'm going to say, if you need your money within one year or less and you didn't get out of the market and you need this money you might want to think about in the next week or so, taking the money that you need out of the market. Once again, if you don't need this money for at least three to five years, preferably longer, 10, 15, 20 years, can you just stay put as long as you are in good quality stocks, mutual funds, exchange-traded funds? Because again, you can not time this market. Don't think you're going to sell here and if the market happens to go down and nobody knows if it's really going to go down, if it happens to go down, you're not going to buy in at the bottom. Trust me, because you're going to be waiting until it goes down even further. So I don't know, I wouldn't be too tricky here if I were you. If you want to do something, just go slowly, all right? Now, did that make sense? I just want to say a few more things about real estate. I've told you I am not a fan of real estate here right now. And I do believe, I don't care what anybody says, I do believe that by September, October, November, sometime later on in fall when you know by September we're all going to be feeling a lot better, I can tell you that right now. By February of next year, I have told you this before in podcasts before that I think we're going to be on solid footing in February of 2021. But right around there, the end of this year sometime, beginning of next, I think you're going to see so many pieces of real estate on the market for sale it is not even funny. So, if you're thinking about buying a piece of real estate right here and right now, I'm just saying my advice to you would be, just wait. Just wait because I think you're going to have the pick of the litter in a few months. Got that? All right, let's see, let me look at my notes, I made notes to myself. Right, that's all I wanted to say to you before I went in and answered questions. All right, let's see what we have. All right, this one is from Missy. She says, Suze, I heard your podcasts on March 8 and proceeded to buy the ETF, which stands for exchange-traded fund, everybody, XLE just like you said to. All right, I'll comment on that in a second. However, I paid $30 a share shortly after that, and it dropped almost immediately to $23 a share, and I got afraid, and I sold. Missy's question to me is, did I make a mistake? Oh, boy, Missy. Um, listen, everybody. When I told you back on March 8, did I not say to you that I'm going to make a very risky call? I'm going to tell you about a few exchange-traded funds that I think you should put your money in. And the risky call was saying, and I said to you at that time, you could go back, and I'm sure she's got the date right there, I don't even know if that was the date I said it. I said I may be making one of the dumbest calls I've ever made in my life, but I would purchase little by little, I kept saying tiny amounts every month for just a little bit of time here, the XLEs. For those of you who don't know what the XLEs are, they are an exchange-traded fund that works like an index. It's an index that's made up of energy stocks, oil stocks. Now, you know and I know that oil absolutely got obliterated, and I kind of knew that oil was going to get obliterated. And I told you that just little by little, buy a little, buy a little every month, every two weeks, whatever it is, and then let's just see what happens. Because I personally believe that in June, July, right in there, you know, two months from now or so, a month from now, I think oil was going to come back. Well, for a while there, when you do something like that, it takes a lot of nerve. It really does, because it's like, OK, buy something, and I think it was about, you know, Missy said she bought it at about $30 a share. But I think when I told you all to buy it, it was more like $33, $34 a share, something like that. And to see something drop from $30 a share down to $22 a share, that's eight points, 10 points, depending on where you bought it. That is a tremendous drop. But the reason why I wanted you to dollar-cost average into this is that I didn't know how low it would go but I had total faith that it would come back. Now, everybody, I can tell, told me that I was absolutely crazy, that was the worst call I had ever made. Suze Orman, how could you have done that? And I just thought, oil is not going away, I don't care what anybody says. One day it will come back, not that I really want it to come back. You know, somebody even wrote to me and said Suze, how can you tell people to invest in oil? Oil is destroying this world, you shouldn't be doing that. On some level, this person was absolutely right. So I thought, OK, maybe I just shouldn't make recommendations anymore. But, Missy, here's what I'm going to say to you. Did you make a mistake? I have to tell you, you did, because you sold at $23 a share. Close of business last night, the XLEs were at approximately $39 a share, and on March 23 they paid you 53 cents in a dividend. So it pays you a tremendous dividend. You know, at one point, it was like it 14% dividend. It pays you a dividend, which is another reason that I thought, OK, let's try it, at least we're going to get paid to hold this for a while. So, you took a loss of $7 a share. At this point, if you had still held it, you would have a gain of 30% a share from where you bought it at $30 a share. If you had done what I asked you, however, which was to invest a little bit of money every single month. So, if you had simply bought it at $30 a share and then all of a sudden, you put a little more money in at $23 a share, your cost basis would be $26.50 a share, and you would today have a 49% gain on your money. Do you all understand why I like dollar-cost averaging in volatile markets like this? So, but here's the thing, Missy, and it's fine because I told you only invest like $100 or whatever so it doesn't matter that you made a mistake. What matters is that you understand this lesson that fear is the main internal obstacle to wealth, and the reason that you sold out is you got afraid. And so if you now notice that you get afraid when you do something, maybe you're the type of personality that shouldn't be investing in the stock market at all, especially at times like this. And there's nothing wrong with that, Missy. There's nothing wrong with that. You need to know what type of investor are you? So if you're an investor that you simply just invest, because a lot of you are writing and saying, Suze, I want to invest for the first time. All right, if you want to invest for the first time, you have to invest an amount of money that you're not afraid to lose, and where you just simply do a little by a little every single month. OK, dollar-cost averaging. And then when it goes down, you buy more shares. When it goes up, you'll make more money, but that's just something to think about. Now, really the next question is, Suze, what should you be doing from here, since it's now at $39, and we've gone up a lot? Well, I don't know. I still think, seriously, that we could be in trouble in the middle of May. Will it affect oil or not? I'm not sure, but do I think oil will come back even more in June? I do. So you're going to have to make that decision. You're up nicely right now, there's nothing wrong with you taking a gain, especially if it's in a retirement account. And, you know, just going hey, I did that trade, that was great, and you're happy about it. So now it's on you, not me. I have to think twice again before I make any recommendations. It took a lot of guts I have to tell you. Anyway, happy to see I wasn't wrong. At least right now I'm not. All right, the next one is from Lucy. Lucy says, hi, Suze. My husband and I have a universal life insurance policy since 1988, it's called flexible premium adjustable life insurance for a $100k face amount. I will be 64 this year and my husband will be 65 this year. We both have separate contract numbers, but we pay together $385 every quarter, and the cash value is approximately $9k for me and $13k for my husband. We have no kids. Please advise if we should cash in for the cash value that is left. Your opinion is appreciated. Thank you, Lucy. All right, Lucy. Now Lucy is a person that I actually answered back directly, but I wanted to answer this on the podcast because it is no secret that Suze Orman, in most cases, hates universal life, whole life, and variable life insurance policies. Now, there are some circumstances for people who bought it years and years and years ago, it's already paid up, it doesn't cost you anything anymore. All right, that's a whole different story. But if you're still paying premiums on a universal, whole life, or variable life insurance policy, you just need to know Suze Orman does not like them. So, Lucy, here's what you really need to know. Now, everybody, I need you to listen to this so you get educated on why Suze Orman doesn't like these policies, so listen up. For 32 years, Lucy and her husband have been paying $385 a quarter for a $100k death benefit. Do you know that if Lucy had put $385 into an investment account, all right, whatever it may have been, and it just averaged 6% over those 32 years? And I have to tell you, over 32 years, Lucy and her husband would have made far more than 6%. She probably would have averaged 10% on it, but that's beside the point. Do you know that today Lucy would have at least $144k in that account? Instead, they have $21k in cash value. Do you understand why I don't like it? So, if I were Lucy and I didn't need insurance, and I knew my husband was healthy, overall, and I was still young. You know, she's in her mid-60s, that's still young, she has a good 20 years left to live or so. I don't know, I would take that $21k out, and I would continue to ad $385 every single quarter to that. And even if she just dollar-cost averaged into the market or whatever, over the next 20 years she's going to make a least 5% I would predict that money. She would have $108k. So, given that she doesn't need insurance, she doesn't have kids, she would be OK if one of them died, financially speaking. If it were me, I would absolutely cash out the policy and just know, because Lucy put in almost $48k over those 32 years, when she cashes out and only gets $21k, it's not taxable, because she's taking out less then what she put in. And I would absolutely take that money and I would invest it, little by little, or just add to my emergency fund. That's what I would be doing. So for those of you who have a policy like that and you're in Lucy's situation, listen to this podcast over and over again and then find out from your own insurance agent, how much money did you put in? What is it worth? What is the cash value? Find out everything you have about it and then make an intelligent decision from there. All right, Audra asks, Suze, just wondering, should a bonus from your employer be taxable? Audra, you bet it should be. What? Why would it not be taxable? When somebody gives you a bonus, they take a tax write off for it and you pay taxes on it. Just that simple. All right, from Carmen, and she says, hello, Suze. My question is regarding student debt. It's been almost 20 years since I graduated from college and I still owe the full amount of loans, approximately $75k. All right, parents and students, please listen fully to this question. Now, you would think I went to a big school or something, but no, I went to a state college in Massachusetts and paid out of state tuition. Unfortunately, I did not know any better at the time, and my priorities were not in place. I then went on to a career in film and TV, which is considered freelance work. I work project to project. So, when I was out of work, I would defer or forbear my loans and the amount got to be too high for me now that I am on my own with a daughter. I consistently called and made deals but then would default on the loans. Finally, this year I went too long without taking care of them, and the company charged it off. The backers of my loan also charged them off this week, and now it shows up in collections, right when I was getting my ducks in order to buy a home. How can I fix this mess I have gotten myself into at the age of 47? Well, Carmen, the first thing that I want to say to you is that you were not just getting your ducks lined up to buy a home. You can't buy a home and spend money when you can't even pay a debt that's growing that you already have. And how many times have I said student loans, in most cases, are not dischargeable in bankruptcy. So, here you are now in a situation, and you have to understand this. So for all of you listening right now, please be very, very careful. I know a lot of you want to go out of state to certain colleges and universities. Give me a break, do not do that, do not do that, do not do that. If you have to go into serious debt to be able to simply go out of state, stay in state and save money. Don't be ridiculous. But, Carmen, I just had to be clear on this. So of course, I sent an email to my friend, Mark Kantrowitz, the publisher of www.savingforcollege.com, who I have told you all many times has to be the absolute brightest person in the United States when it comes to anything regarding student loans. Because I was thinking, I don't know, charging off debt, what does that mean? It's a student loan. You know, do they discharge the debt? Do they charge it off? What? Are you sure Carmen that you know? And so here's basically what the answer was to that, is that you have to know that a charge-off or write-off is recording the debt as having no value on the lender's books. However, listen closely, Carmen. The debt is still owed to the lender, they just aren't actively attempting to collect it anymore. That doesn't mean that they're not going to try to collect it sometime in the future. Do you hear me, girlfriend? And that's in contrast with a discharge, which absolutely cancels the debt. So when debt is canceled, however, the amount that is canceled is treated as income by the I.R.S., yielding a tax liability. And it's almost as though, you know, somebody paid you the amount needed to pay off that debt. So when debt is charged off, there is no cancellation of the promissory note, and the debt is still owed. So, therefore, one good news right now is there's no tax liability. Now I know you may be tempted. You may absolutely be tempted to call the lender and ask them to remove this information from your credit report so that you could buy a home. But please do not do that because if you tell them that you are going to buy a home than they now know that you have money because you're going to buy a home and that money could be used to repay the debt. What you could do is you could try challenging the information on your credit report. And then lenders do have a limited amount of time to respond to that challenge or the negative information that must be removed. The only problem is that given that everyone is affected by the pandemic, they might not have the staff to respond to this dispute so you might be out of luck. But, Carmen, you have to be very careful here. Got that, girlfriend? So I hope that wasn't too complicated for all of you, but that's something really important that you need to know. I have to tell you, I think that the last question out of all the questions that I just answered is probably the most important question of them all. Because so many students right now, so many can't afford to pay their student loans. Maybe they're going to have a job left when this is all over maybe they aren't and they still owe all this money. What are they going to do? So just please, earmark this one podcast and come back and listen to that over and over again. And make sure that you make paying your student loans your number one priority, especially when everything comes back to normal. All right, everybody, I think that's enough for one session of Ask Suzy Anything. Again, don't forget to get the app. Go to Apple Apps or Google Play and search Suze Orman and come be with us on the community app. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Credit & Debt, Saving, Investing, Retirement