Podcast Episode - Ask Suze Anything

Credit Union, Interest Rates, Marriage, Stock Market

June 18, 2020

Listen to Podcast Episode:

On this podcast of Ask Suze Anything, Suze answers questions from a lot of Women & Money listeners about the economy and the stock market.  Plus, two specific questions from Kevin and Josie.

June 18, 2020. Welcome to the Women and Money podcast as well as the men smart enough to listen. Today is Ask Suze Anything, and this is where you write in and you can write in by simply downloading my app by going to Apple Apps or Google Play, and search for Suze Orman. You should know how to spell my name by now and download the app, and there is where you can send in questions and, if chosen, I'll answer them here on the podcast. And again, you never know when I will contact you directly. There are many other things that you can find right there on the app. But really, this is Ask Suze Anything and this is how you get to ask me anything. Before I begin, I just want to make some statements about the stock market. I've been interviewed a lot lately, and I keep finding myself saying, as I've said to you many times on this podcast, is that the stock market is not the economy and the economy is not the stock market. And I see that a lot of you are writing in saying, Suze, what do you mean by that? So let me just answer that one question since many of you are asking it. The stock market goes up, the stock market goes down, and what drives it up and down are people who have money that they are investing or they have decided they don't want to invest, so they sell and they pull it out. But it's not just ordinary, everyday people that are investing. It's pension plans, it's corporations, it's all kinds of major entities. And when you have major entities, such as endowments for major universities like Harvard, and they have billions of dollars and they're investing that money, then you just don't have everyday people that are investing, but you also have big money that's investing. And when you have big money that's investing, they usually have time, to wait. They have strategies, and they invest huge sums, and they also can sell huge sums. So when you see the market doing well and the markets going up, you really have to think to yourself, whose money is that? Like, what's happening here? What's going on? And so, when you have big money combined with little money, meaning everyday people, and all of us have little money, including me in comparison to major investors, then the stock market can do well for many, many reasons. Especially if a few of those major entities really think that they want to get in and invest money because they have a lot of cash. Also, if you look at the stock market, the stock market is really the only alternative out there right now for people who do have money to put it somewhere, to possibly earn a good interest rate or make it grow. As much as it's great to keep your money safe and sound, there's only so much that you need to keep safe and sound and the other amount of money needs to be invested. So, where do you put it? And really there are no places, look around. You get 1%, .5% percent, maybe 1.5%, and so when you see the markets go up when you see that there are stocks that are solid stocks paying good dividends, then, of course, you are almost forced to go into the market, and that will cause the stock market to go up. Also, we have something going on that we've never had before, and that's millions and millions of people who are on unemployment are getting more money, some of them, on unemployment than they got when they were working. And all of that is happening at the same time when they don't have to make a mortgage payment, they don't have to make a student loan payment, or a car payment, or their credit card payments. And there's a lot of money out there. And for whatever reason, a lot of that money, I think, is finding its way into the stock market, where people are speculating in the hopes that they could make some big money very quickly and then come out of the market and then pay off their debts with it. It's a very fascinating phenomenon that's going on right now in the stock market, which is why you see these wild fluctuations up, down, up, down. I personally think you're going to see the Dow Jones Industrial Average fluctuate between 22k, 26k, or 27k, right in there, back and forth for a while now, and it will go up and it will go down. And again, I will repeat, by February of next year, I think we'll be on a more solid course, and it will just take its natural course, I hope, of growth at that point in time. So the stock market does well for many, many reasons. But the stock market is not the economy. So what do I mean by that now? The economy, and let's not look at the big economy, let's first look at your personal financial-economic situation. How's it doing, everybody? Isn't it true that these past few months cost you some of your capital? You used up a good portion of your emergency funds or all of your cash. You went into debt when you had just gotten out of debt. You don't have a smudge capital to work with, you have no prospects of getting a job, you're in one of those industries that they're not going to hire back. And so, therefore, you are in a far worse economic position than you were before the pandemic hit. And that's how your personal economy is doing. So when your personal economy isn't doing very well, you don't have the money to go out and do what? To buy a car, to buy, clothes, to go shopping, to go to the movies, to do home repair, to do all the things that stimulate the overall economy. All of that is happening at the exact same time when unemployment, the $600 a week that many of you have been getting right now, that is scheduled to end at the end of July. And that's $2400 a month. And maybe you and your spouse are both getting that $2400 a month besides your regular unemployment. That's like $4800 extra a month, which is more than maybe you were making while working. And again, you're still getting regular unemployment, plus you got a stimulus check and all these other things. And maybe you partook in the PPP programs, the Paycheck Protection Program, and so you have some cash around, but you haven't had to spend that cash because why? You've also not had to pay possibly for 90 days or three months on your mortgage, your car payment, your credit card payments, your car insurance premiums, all of those things. If you have a federal direct student loan, you don't have to pay that until September 30th. So these major expenses that you've always been used to paying, many of you aren't having to pay them. At the same time, you're possibly getting more income on unemployment than you were getting, but did you save that money or did you spend it? Did you invest it? What did you do with it? So here we are now about to have a perfect storm, where your unemployment, at least from the Feds, right now is scheduled to stop at the same time that your payments for what? For rent, for your mortgage, for car payments, it all may click back in. So now your income has gone down, you still don't have a job, and now you all those payments again. That is the perfect storm coming up, so economically speaking, there is a lot of headwinds out there because many people just don't have the money anymore to go out and to continue to spend, and spend, and spend. Some do. Most are acting like everything is fine, but it's really not fine. And we are not going to feel this until unemployment stops, your payments are due, and then we'll see what's happening. You can already see this in the rental markets for renting an apartment. Many people just left their apartment because they didn't have the money, they couldn't do it. They decided they should move in with a friend and they just left the apartment vacant, and all these landlords now are starting to put their rental properties on the market for discounts of 10-13%. You can see it in San Francisco, you can see it in New York, you can see it all over the place, so rents have finally started to come down. So by the way, if you're looking to rent an apartment, I would take advantage of it right here and right now, because landlords are acting like they are desperate. They need somebody to fill their vacant rentals so you can see that when that starts to happen and rents start to go down, the economy must not be doing that great. So that's what I mean when I say the stock market is the stock market and the economy is the economy. Again, the government, the reason why they have given you the $600 a week, the stimulus checks, the PPP programs, is they are hoping you take that money and you spend it to stimulate the economy. While Suze Orman has been sitting here saying, please don't spend it, please don't spend it. Please save it, please build up your eight-month emergency fund, please, let's just see what happens. And so, that's all going to stop here soon, peeps. So you really need to be prepared for that. So it's not too late, there are still a few more payments left on it. Can you just save your money? Can you just make sure that you have your eight-month emergency fund or you're working towards that? Because you're still going to need it, no matter what. It is an essential tool in your financial freedom treasure chest. Do you hear me? There, I just took up half of the podcast today with me going on a rant here with just the answer to that one question, but I think that's information that's really important for you to know. Kevin asked, hi, Suze. Thank you for all your support during this time. You recently mentioned that bonds have made money this year. Some of my bond funds are down 5-10% since March 6. Does that mean I'm in the wrong bond funds? Kevin, I didn't say all bonds made money. What I was talking about a few months ago was that I was recommending that people look into buying at the time, no longer, but at the time, a 30-year Treasury bond. And at that time it was paying about 2% or a little bit more. And I kept telling everybody, if it went down just 1%, the price of that bond would go up almost 18% and then you would sell and you would lock in that gain. And that's exactly what happened. Now, however, it's a whole different scenario. So please, everybody, be very careful. When I tell you to do something, you have to do it right then and right there. And if you're listening to this podcast months later, then you need to go back and go, oh, she said that then that doesn't apply now. So, please be very careful when I'm giving specific financial advice for you to do something. Now, let's go to Suze School. Individual bonds versus bond funds. An individual bond is a debt instrument. It's what happens when a corporation or a government needs to raise money to do things, such as send you all your stimulus checks and everything. The United States government needs to raise money to give you money since the government is essentially broke. So, they go into the market and they sell Treasury bonds. Corporations, when they need to do it, they go into the market and they sell corporate bonds. Municipalities, when they need money, they go into the market and they sell municipal bonds. That's how entities raise money. And when you purchase one of those bonds, those individual bonds, usually, if you purchase them on the offering when they originally come out, you pay par. And when you pay par, that is the technical word for you paying $1k per bond is usually equal to par. When you purchase that bond, you also get a specific interest rate for a specific period of time. At the end of that time, the maturity date of that bond, you get all your money back. There's only one bond that's guaranteed for you to get all your money back, and that is a United States Treasury bill, bond, or note. There are different words for the Treasuries. A bill is like up to nine months, a note is like up to seven years, and a bond is seven to 30 years. That's the only difference. But a bill, bond, or note issued by the United States Treasury is the only investment that a financial advisor can tell you that you are guaranteed to get your money back because they're guaranteed by the taxing authority of the United States government. That is not true with a corporate bond or a municipal bond. But if it's a good quality bond, regardless of the type of bond, on its maturity date, you get back your money. Got that? A bond fund is a fund made up of individual bonds, but a bond fund does not have a maturity date, and it does not have a fixed interest rate, so you get whatever the interest rate is that all the bonds are cumulatively making, and you get back whatever the price per share of that bond fund happens to be. Now, when interest rates go up, the price of a bond goes down. When interest rates go down, the price of a bond goes up, and the reason is that once a bond is issued, it then trades on the market. And since the interest rates on bonds are fixed, so you have a bond at $1k that bond pays 5%, then that bond is going to pay you $50 a year or $25 every six months. OK, follow me here, now listen to me. You bought that bond, all right, everything's great. You're not looking at it again. But now that bond is selling in the open market and interest rates have gone from 5% up to 10%. Who's going to buy that bond at $50 a year when they could go out and buy a new bond that's issued at par, paying 10% which is $100 a year? Nobody in their right mind. So, the price of the bond will go down to $500 a bond, it's still paying $50 because the interest rate is always fixed. And if somebody bought that in the open market then, their yield would be 10%. And conversely, so if interest rates dropped from 5% to 2.5%, so the bond price would go up to $2k because every other bond is trading added 2.5% yield, so 2.5% of $2k would be $50 which is what that bond pays you. Now, those air extreme examples. But I'm just trying to teach you why interest rates if they go down, the value of a bond goes up, and if interest rates go up, the value of a bond goes down. That's because they're called fixed-income investments. And if that all just confused you, listen to it again, and again, and again because this is a very important thing for you to understand. So, Kevin, there are many reasons why the fund may have gone down. Did people sell out? Did they want to come out of bonds to go into the stock market? Why is that? There are all kinds of reasons, but I can't tell you if you're in the wrong bond funds because I don't know which bond funds you're in. But I really, in general, like individual bonds over bond funds. But I have to tell you right now, I don't like bonds, even individual bonds, at all. Well, this will be a great Ask Suze Anything, it will be two questions. I think I'm a little long-winded today, but these are important things for you to understand. Let's see if Josie has one that's shorter here for everybody. My question is about social security. My husband wants me to take social security at 62. He is three years younger than I am and has made a lot more money than I have. He plans to take his social security at 70. Can I take mine now and then start taking half of his social security when he is 70? You betcha you can, my dear Josie, and you should absolutely be doing what your husband is asking you. You will make a whole lot more money if you take yours right now at 62. Are you all in shock right now? Because I'm just sitting here thinking, oh, my God, I'm always telling everybody to wait until they're 70, wait until they're 70. So it is really, really important when you hear me say, take social Security at 70, wait until 70. I'm talking to either individuals who are healthy and they're not in a relationship, and/or I'm talking to individuals that are the main wage earner. And it's very different, though, when we then talk about spousal benefits. So maybe next Thursday I'll pick up on this and talk even more about spousal benefits and I'll look for questions to answer. But that is your answer, Josie. So many questions and so many answers, but you know, it's really important that you get detailed answers to these questions. This doesn't always have to be rapid-fire where I just go, yes, no, yes, you do this, you do that. It's really important to me anyway, for you to understand why you need to do that which you need to do. So I hope today you learned exactly why and what you should be doing in specific situations. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. 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.

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