Emergency Fund, Stocks, Student Loans
September 03, 2020
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On this podcast of Ask Suze Anything, Suze gives us a quick update on the economy and the stock market. Then, she answers questions from Women & Money listeners June, Sally, James, Sissy, and more.
Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. September 3, 2020. Suze O. here and 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 if you write in, ask a question and it is chosen, I will answer it on the Ask Suze Anything podcast. And to do so, you simply need to download the Women and Money app and you download the Women and Money app by going to Apple Apps or Google Play, search for Suze Orman, download it, and that is where you ask questions and you can do so many other things there. You can listen to the podcast there, you can get transcripts of the podcast there, you can search topics of past podcasts there, you can take The Eight Qualities of a Wealthy Woman course, which I advise all of you to do. This coming Monday will be the last quality, the eighth quality, but it's there for your convenience, and you should really take advantage of it. I actually think it was quite great, but then I would, wouldn't I? So, you might want to take advantage of that app. Also, we're here and before I really go to your questions, I want to talk about yesterday. I want to talk about the economy, I want to talk about the stock market because yesterday alone if you looked at the Dow Jones industrial average, it went up over 400 points yesterday. So, it seems like nothing, nothing in this world is going to stop this stock market. Isn't that how you feel? But so many of you, so many of you have individual stocks that haven't gone up. The market has gone up tremendously and your stocks haven't moved, how is that possible? It's possible because the stock market has gone up because essentially eight stocks have skyrocketed. The majority of stocks really haven't done much at all but eight stocks and you know they've gone up so much. It's like Zoom went up 100 points, I think it was yesterday, in just one day. You have stocks like Tesla that have gone up like I don't know how many hundreds of percent this year, it's like ridiculous. And Apple and just stocks that are just not in your portfolio, most likely. And there you are and you're not making money. And now you're thinking to yourself, I know, I'm going to sell the stocks that I have and I'm going to buy Amazon, I'm going to buy Apple, I'm going to buy Tesla, I'm going to buy Shopify, I'm going to buy Zoom, I'm going to buy PayPal, I'm going to buy Teladoc, I'm going to buy DocuSign, I'm going to buy all of these stocks that have been going up and up and up. Be very careful here because this reminds me a lot of back in 1999, the year 2000 when you had stocks just like this that were skyrocketing, and before you knew it, they crashed so fast, so far down it's not even funny. So please be very, very careful here. You also seriously have to ask yourself the question, if you own stocks that have gone up that much in value, should you keep them or should you sell them? And that's very hard for me to answer because it all depends on your holding period. Like I own Apple, I own Amazon, and am I tempted to sell Amazon here? For some reason, I am. Will I? I am not sure yet, but Apple, for instance, I think I'm going to own Apple forever. So, I'm not going to sell my Apple here and I don't care if it goes way back down again because I'll just buy more. But you have to have that kind of mind frame in order to keep stocks. There's also nothing wrong with sometimes selling half when a stock has just skyrocketed. And it's just absurd, especially if it is in a retirement account because then you don't have any tax ramifications. So, these are things that you need to think about. Now, one of the reasons, way back when I wanted all of you to continue to invest and so many of the people out there, I'll never forget, I think it was Market Watch said, Suze Orman says if you stay invested in the stock market, if you keep investing in the stock market, in three years, you will be so happy. Headlines, everything like, Are You Crazy, Suze Orman? Well, now, no, and I'm so glad that we continue to dollar cost average in, and we didn't sell out of what we had. But again, I'm just going to say something here. If you need your money within one year, that is not money that belongs in the stock market, and I don't care if it goes up, up, up. That is not money that belongs in the stock market. But when you have five years, 10 years preferably, or longer, I don't have a problem at all with you staying in and keep dollar-cost averaging. But back then, I was saying to all of you, why not just stay in and continue to dollar cost average and buy the Vanguard Total Stock Market Index symbol VTI. And back then it hit its low at about $112 a share in March, and it invested in the entire stock market because I had a feeling that just a few stocks were going to drive this market up. Then, if you didn't have the money to buy those few stocks because they were already very expensive stocks to buy, that your stocks probably wouldn't go up. So, if you just bought the Vanguard Total Stock Market Index that you would see some appreciation in your money because the stocks that went up would also be in that index. And sure enough, as of yesterday's close, it was at $183 a share, and even at $183 a share, it is paying you a 1.85% dividend. So, over that time, it's gone up 71 points, or about 63%. And even if you dollar cost averaged every single month as it was going up, you would have been making good money on your money, but this is why diversification is so important. This is why I say to you, if you're going to buy individual stocks, you have to own at least 20 individual stocks. You need diversification, and it is most likely of the 20 stocks that you may own, maybe 20% of them will generate all of your gains, while the other 80% won't do much for you. I myself own over 100 stocks, so it's diversification is key and it's really key right now, so just be careful there. Does any of this make sense, truthfully? Well, not really. You know, I've also said to you that the economy is not the stock market and the stock market is not the economy. The economy is still doing horrific, everybody, it is doing horrific. You have 30 million people unemployed, you have 186k people that have died of the virus, and we don't have a cure for the virus yet. We have 40% of the people that are unemployed are not going to get their jobs back. We have so much debt, it's not even funny. And yet, the stock market keeps going up and up and up, and why is that? Well, in my opinion, for two reasons. Number one, people who have a lot of money can afford to risk money, and there's no place else to put that money. You can't buy bonds anymore, bonds are at like half a percent interest. Real estate, most people really don't want to buy real estate as an investment because it's labor-intensive if you think about it. Gold, all right, but most people don't put a whole lot of money in gold, maybe 5% of their portfolio and gold is almost at its all-time high right now as well. Bitcoin, all right, you want to put 5% in Bitcoin as we talked about a few months ago, I don't have a problem with that, but not more than that. So, big money goes into the stock market. Then you have people who don't have money in the stock market, but they have money in emergency funds, they have money in the retirement accounts, they have money, but they didn't want to necessarily risk it. And then they have the fear of missing out, and finally, they go, I've had it and they come out of their certificates of deposit, their savings account, and what do they do? They go in and they start buying, especially because now, with Schwab, and Robin Hood, and Fidelity, you can buy slices of stocks. So, they start to go in and buy $5 worth of Amazon, $10 worth of Tesla, and you have all these people doing that, which also drives up the price of the stocks. And there you go. But does it really make any sense? No. I've talked to more financial analysts than you want to know about, and every one of them is, I just don't understand it, they don't have an understanding of this. Not that that means anything, but it is something you just might want to pay attention to. Again, when I come out of the stock market, not exactly, not right here, not yet. If I had tremendous gains, however, in stocks like Tesla, possibly even Apple, certain stocks and keeping this gain here, just let's say it was in a retirement account and you made a tremendous amount of money and there aren't any tax ramifications. I don't know, I don't think it's so bad to lock-up this kind of gain right here because maybe that amount of money will make a difference. It will, you know, it will secure your future for you. And if it really has secured your future and it gives you enough money to have a secure retirement or whatever, don't get greedy people, don't get greedy. Because again, I've seen things fall very rapidly, and you'll just have to decide what you want to do here. For me, personally, especially with some of the stocks, I'm holding them for the long, long term, and I do not care if they go way back down again. I will buy into them as they go down because I do believe five years from now, 10 years from now, most of the stocks that I do own will be considerably higher. But those stocks won't determine my future. All of my safe money is safe and sound, so just know that you're in the right circumstance and that you're thinking about this correctly. All right, let's go to June, who writes in a question about student loans, and she says, Suze, I know student loan payments start up again on September 30th. I still don't have a job. Any suggestions? Well, June, my dear, you're obviously not reading the papers or staying up on things. But the September 30th moratorium for student loans has been postponed until December 31, 2020, and possibly longer. So you do not have to pay your student loan payments or any interest on it, nothing will accrue, until after December 31, 2020, if nothing else changes. So you're in luck. What's important for everybody to know, however, is remember, this postponement is only for Federal Direct loans, that includes the Plus loans, for Federal Family Education loans held by the government, for Federal Perkins loans held by the government, and defaulted Health Education Assistant loans or HEAL loans. Those are the only ones that qualify for this postponement. If you have a private loan or state student loan, you're going to have to, you're paying them, you're just paying them. So, that's just something that you should know. I'm going to stick on student loans here for just a second because so many people have them and this one's from Sally and she says, Suze, I'm so happy. I now have my job back, and I was able to save an eight-month emergency fund because I listen to you. Before I go on, you didn't save an eight-month emergency fund because you listen to me. You saved an eight-month emergency fund because you were smart, because it made sense, and you took the payments that you were putting towards your student loan and who knows what else and saved it, and you did it. So, girlfriend, you should be congratulating yourself, not me. Anyway, first time in my life she says, that I have an eight-month emergency fund, and then she is his little signs that say yippee, yippee, yippee. However, now that I can afford to pay my student loans, should I, even though I don't have to? I hear… See, she now has been listening. …I hear they extended the postponement until December 31, 2020. So, Sally, listen, if in fact, you're contributing to your retirement account, you have an eight-month emergency fund, you're totally out of credit card debt, which I'm assuming you are if you have an eight-month emergency fund as well, and you have your job back and everything's good, pay your student loans even though they're in postponement. Because now, there's no interest being charged on those loans, and I don't know when you got your loans, but I imagine it was a while ago. You probably haven't refinanced those loans, they're probably at least a 6.8% interest rate. So, why not take advantage of the interest rate being deferred, and therefore you're paying your student loan, so 100% of your payment goes to your principal, and that will knock it down even faster. So, if you have the money out there and you have everything that I've asked you to have in place, yeah, don't take advantage of the student loan postponement any more, pay the student loan payment. But listen, if you're going to do that, you have to make sure that you contact your student loan providers and tell them that you want to opt-out of forbearance, because it's an automatic thing where they've just put everybody in forbearance, which means you don't pay your student loan payment, and they just put everybody who qualifies in that category. So, if you want to opt-out of that, you have to contact your student loan person, your loan servicer, and tell them you want to pay your student loan. Got that? All right, let's see what we have next. All right, one more on student loans. James, he says, I'm in a public student loan forgiveness program. Will I be given credit towards the 10 years of payments for the loan to be forgiven, given that I haven't had to make payments on the student loan and will not have to make payments on it until December 31st? So, James, you will. You know, you're going to be given credit towards that 10 years even though you haven't been making student loan payments. But, you're only going to be getting credit for that if you are still working full time for a qualified employer or a qualifying employer. If you've been laid off and you're not making payments, you're not going to get the credit for it. So you have to know that you have to still be working, and then it's as if you're still making those payments, even though you didn't make those payments, so you're going to be given credit for it. Got it? Also, even though James didn't ask this, you may be wondering, there's so many of you out there that are in, you know, income-driven repayment programs. Where you pay as much as you can pay based on your income and then, after 20 or 25 years, your loan is forgiven. And you may be wondering, are you going to be given credit, you know, while you're not having to make payments on your student loan, while you're in suspension. And the answer is yes, you're going to be credited as well. Next one is from Sissy, and this one's on unemployment and she says, I have not been able to find a job since I was laid off in March. I still have not been able to get through to unemployment. Did I blow the $600 federal payment that I could have gotten weekly if somebody had simply picked up the phone and answered my call? How many of you have been trying to get unemployment? You can't get unemployment, you should have gotten unemployment, and you think you missed out on that $600 a week payment from the federal government. I bet a lot of you, but guess what? You haven't missed out on it, you need to keep trying to get unemployment, and they will backdate everything for you. If you deserved unemployment starting in March and you weren't able to get through because of unemployment, your state unemployment's facility couldn't take the volume or whatever the reason is, they will backdate it and you will get not only the state unemployment going all the way back to March, but you'll get the $600 a week as well. So, keep trying and going for that because that's a big deal, everybody. This next one is from Gina and she says, Suze, my employer just told me I will be getting more money in my paycheck starting in September, for they will not be withholding 6.2% for payroll taxes. I don't need this money, I have no debt, my home is paid off, my car is paid off, I fully fund my retirement accounts, I have a one-year emergency fund. Can you tell, Suze, that I've been listening to you for now 15 years? I kind of can, Gina, I love that. And then she asks, what should I do with this money? Here's what you should do my dear Gina. You should march yourself back into your employer's office or your HR division, and you should tell them that you do not want them to withhold the 6.2% from your paycheck. You absolutely want to pay it, and you don't want to take advantage of that. Now, why is that? That is because, first of all, just so everybody knows, is that a month or two ago, whenever it was, it was signed as an executive order that starting right about now, that if your bi-weekly paycheck was $4k or less, that you would not have to pay the payroll tax. And just so you know, the payroll tax at 6.2% goes to do what? It funds Social Security and Medicare. And, ugh, what a bad idea. But anyway, OK, but the problem is next year unless Congress votes it in, the president cannot dictate this, it has to be an act of Congress. You will have to pay that 6.2% back, plus the 6.2% that they will start withholding again next year. So, you're going to be hit with a nice sum of money that you're going to owe, and since you don't need the money, you have everything that you need, don't let that money be taken out. Got it? All right, this next one is from Lela, and Lela says, I want to refinance my home. Should I do it now or wait until next year? Well, that's an interesting question. I think you're probably asking that Lela because you're thinking, are interest rates going to continue to go down? Here's the thing. I would not wait until next year and here's the reason why. Starting December 1, Fannie Mae and Freddie Mac that refinance over 50% of all the mortgages that are out there, decided that they were going to assess 0.5% on the loans to the lenders because they want to make up for all the money that they have given out over these past few months. So, that could be a lot of money. So, it's 0.5% of the total loan amount. That could be $1500, it could be more than that. And while everybody saying that this is a fee on the lender, it's not necessarily going to be passed on to the consumer, you, the borrower. Are you kidding me? Your lender, the person, the company, the bank, whoever it is that's going to lend you money, do you really think that they're going to be the ones who pay for that out of their own pocket? I don't think so. It's going to come from you one way or the other. So, if I were you, I would do a refinance before December 1. Now, does this apply to everybody? No. If you have a loan that's going to be like a jumbo loan, and a jumbo loan is like, depending on where you live, like $500k to $700k. So, if you're just taking out a conventional loan, this most likely will apply to you. If you're taking out a jumbo loan or an FHA loan, or one of those types of loans, this will not apply to you. But just know, just know, they're coming after you for money one way or the other. So, these are the questions you need to ask. So, if I were refinancing, I would absolutely refinance before when? December 1, and again, this is only on refinances, this is not on new mortgages, it is on refinances. All right, and we have time for one more. And I think this one is relevant because I'm sure all of you have been hearing about this and it's from Judy. And she says, Suze, I know nothing about stocks. In my divorce, I got 100 shares of Apple and I check on it every once in a while. Last Friday, I looked at it and it was $499 a share. Then I thought, wow, that's a lot of money. So, I decided I like looking at this. I looked at it again yesterday, and it was at $137 a share. Should I sell or should I buy more? Judy, Judy, Judy. So, what's happened here, Judy, is just on Monday, Apple stock, as well as Tesla stock, did what's called a split, and I'll just deal with Apple for now. And Apple did what was called a four to one split. So, for every share of Apple that you had, you now automatically have four shares, but, they also reduce the price of the stock as well. So, if Apple was at $499 a share before the split and they're going to give you four shares for every share that you have, you would divide $499 by four, and they would reduce the price of the stock from $499 to $124.75, which is exactly where it opened up on Monday when this split became final and then it started to trade from there. So, if you think about it, last week when it was at $499 a share and you have 100 shares, that's $49,900. Today, you have 400 shares at about $130 a share, because it's gone down a little bit since you last looked. That's $52k. So, they split the stock. In fact, Apple has split its stock five times since it went public in December of 1980 when it came out at $22 a share. And the reason a stock splits is they want to make it more affordable for people to buy. Do you know that if Apple had never split, ever, ever had split, today it would be $28k a share? And there aren't many people that could have bought Apple at $28k a share, although now with Schwab and Fidelity and everybody being able to buy a slice of a stock, so you could have bought $10 worth of Apple. So, now, a split I don't think is going to be that much more relevant anymore to tell you the truth now with slices and no minimums out there and no commission, by the way, to do so. But, Apple split to make it more affordable because at $500 a share, you know that's a lot for somebody they have to pay to buy just one share. So, now it's more affordable. Here's something, though, that you have got to keep in mind. When you had 100 shares for every dollar that Apple went up, you made $100. But for every dollar that apple went down, you lost $100. Now, however, you have 400 shares, so for every dollar that Apple goes up, you're going to make $400, and every dollar that Apple goes down, you're going to lose $400. So, if Apple goes down five points in one day, that's $2k. If Apple had gone down five points before and you had only had 100 shares, that's $500. So just keep that in mind. When you have more shares, the more shares you have, obviously, the more money you will make if the stock goes up. But if the stock goes down, the more money you will lose. Just something to think about. Want to just hear another little side story before I end? I'm a waitress at The Buttercup Bakery. It's 1973 is when I started, to 1980, and during those years two men would come into The Buttercup, both by the name of Steve, and they would get always something to eat and everything, and I would give them free coffee. And it turned out that they were Steve Jobs and Steve Wozniak. And at the time, Steve Wozniak, I believe it was, was working on Dial-a-Joke in his, you know, garage. And 1-800-dial-a-joke as well as this little thing, this little computer, whatever they were working on. Also, they had a sister, Steve had a sister by the name of Leslie. And when the stock went public, Leslie got a nice sum of shares from Steve, and at that time I was a stockbroker. And I remember Leslie coming to see me. But don't you think that's kind of funny that Steve Jobs and Steve Wozniak would come into The Buttercup Bakery, and tell me about this little thing they were working on in their garage and how upset their mother was or their parents were on them doing it? So, I tell you that story because you see, anything is possible in life. You really can go from nothing to having something, so never let somebody tell you that what you're working on or a thought or something that you want to do isn't a good idea. All right, everybody, that will end the Ask Suzy Anything session for now. Remember to check out The Eight Qualities of a Wealthy Woman, and I will see you, actually, I won't see you, but I hope you'll hear me on the podcast on this coming Sunday. See you then. Hi, I'm Sarah, and I'm Robert, and we're back 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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