About Suze, Investing, Podcast, Retirement, Saving
January 31, 2019
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In this episode, Suze shares her personal feelings about her own investments.
Suze O here and you are listening to the Women & Money podcast. And Sunday was our first episode called The Stock Market Jitters. And we asked a lot of you to send in questions. In fact all of you and almost all of you did. And you have so many questions about the stock market. But before I answer those questions, I just want to say something that may surprise you. Over all the years that the stock market has been around, you always hear people say that over a long period of time, you could average 10, 11% on your money. And I've been thinking about that. And I've been thinking about, have things changed? Can we look back all the way you know, to the twenties and the thirties and the forties and, make the assumption that as we go further on in life that 20, 30, 40 years from now we'll be able to look back and say the exact same thing. And I just want to say this to you and it's going to surprise you. But I don't think we can. I think times have changed. And I think that what was probably never will be again. So I think it is possible and probable that when you look forward and we project out ups and downs in everything, I think a nice safe return will be probably an average of 6% or so. Not 10%. So when you're thinking about investing in the stock market, I want you to be realistic about what is possible or probable. Now I could be 100% wrong. But when I'm figuring out my own future, when I'm figuring out the returns that I can expect over a long period of time, so when I say annual average return, it's because one year it goes up 10%, 1 year it goes down 20%, and over time you average that rate. I think a safe annual average rate of return 10, 20 years from now or whatever, could be just about 6%. So just keep that in mind. Sarah, what do you want to say? I can see it. Well, we were actually talking about this earlier before we, we turned on the mics. And you you told me something very interesting. And you were talking about the returns of the past 10 years and that you know, we have financial advisors out there and all they've seen is this big, big big big big up up up up up. But what you said to me was the actual, if you look at 20 years, if you go 20 years, the average rate of return is 5.5% if you average it over 20 years and I think this is what you're talking about. Yeah, if you go back all the way, yeah, it's like, and you do what's really happened over the past 20 years, you don't come up with 10%. But the one of the reasons that's true Sarah, is that we suffered the 2000 and 2002 technological downturn, along with the downturn of 2008. And so that's unusual that you had two massive downturns that were over, you know that we're about 50% each where the markets went down. That's unusual in that short of a period of time. But even given that, I don't know. I just don't know. Everything seems to be changing so quickly. And I'm not as sure what's gonna happen with artificial intelligence, and everything just doesn't seem to be clicking the way that it used to. And I'm not being pessimistic here. I'm just being realistic that I rather you be very, very conservative in what you can expect from your money. So you hope for the best, but you plan for the worst. And that's how you do a financial plan. I just don't want people planning for the future thinking, oh if I'm in this for the next 20 years, I'm of course gonna average about 10 or 11% on my money. So and then they do those numbers, and then they think they have so much money, and then they're 20 years later, and they find out that they only averaged five or 6%. I'm just being cautious here. I'm just being cautious. Which is my nature. Well, so let me let me ask you this question. We had a question from a woman called Cathy this week. And she wants to know because it ties into this, is this specific period of volatility going to be like this for a while? Will will it settle? Will we settle? How long do these periods of volatility last? I mean we're down 300. If I knew the answer to that question, I'd be even richer than I am right now. Here is the problem. We are living in a place and at a time where nothing anymore is predictable. I am telling you when you see the government shut down for a long period of time, that is not predictable. And that happening affected everything. Nothing that we have going on right now is predictable. And so the markets are going up and the markets are going down, because are we gonna have trade with china? Are we not? Are we gonna be able to do what somebody says we're gonna be able to do or are we not? Really, how does everything affect something else, and nobody knows. And that is why since nobody knows, it's always better to be conservative, just conservative in terms of what you do. Okay, that's a fair question. That's a fair answer. So let's get into some of the other stuff. So glad you thought so. Let's get it. Okay Suze, let's get into some other stuff. This one comes from a top fan on Facebook. I don't know if you know this but on Facebook, the people that come and interact with you and ask you a bunch of questions and like your posts and share your posts, uh if they do it enough they get a little designation as top fan. So Debbie is one of your top fans. I didn’t know that. And well now you do. And I guess you know and and we're gonna be doing a Facebook live for Women & Money coming in February. So hopefully Debbie will be on there and ask you questions directly. But this question is for Debbie. She is um she's retiring or she's retired, she's just retired and she's gonna plan to start converting her previous employers deferred comp from an IRA into a Roth. And she wants to do it in increments. Um so she, she wants to know should I wait until the market does whatever it's going to do, or should I go ahead and start making the switch? She said she doesn't need the funds to live on. So she wants to know what she should be doing with this. So this is something very important everyone in that when you convert money from a traditional IRA, money you have never paid taxes on, listen closely, to a Roth IRA, and you're converting stock. You will convert at let's say the price and let's say it's $50 a share. And you convert 100 shares or $5,000 into a Roth. You will owe taxes on that $5,000. But now you've converted it. And the stock goes from $50 down to $40 down to $30, and you're like oh God but I still owe taxes on $50 a share or that $5,000. In years past, you were able to take that money and put it back in your IRA, and do all this stuff so that you didn't owe taxes anymore on that money because it came back from a Roth into your IRA. That's called reconvert or re characterize it. You can no longer do that. So when you convert, you have to make sure that you're trying to convert at whatever that stock's lowest price could possibly be. And when you have a market that's going up and down and up and down and up and down, I would be making conversions at a time in very small amounts of money. Very small stocks, you know amounts of shares of stock as to when we have a dramatic down day. On that down day when that stock is down, that's when, or mutual fund is down, that's when I would convert. Given that I think that 2020 is going to be a rough year, I just think that. And I hope to God I'm wrong. For those of you who need your money, for those of you who don't need your money for many years to come., I hope I'm right. So you can buy things when they are cheaper when they go down. That's probably when I would start to convert when the market is going down dramatically. But since we don't know what's going to happen when you have dramatic down days, that's when I would convert small amounts of stock. Okay. Well this is a good segue into our next question comes from Lynn. And no, it's not um your sister-in-law I don't think. She uh she just retired last week at the age of 62. She says I've laddered CDs, small defined pension and cash savings. Now, here's the real question. Much of her retirement money is in stock. She says she doesn't need it for another 5 to 7 years. She says, this is good because I lost a chunk of it at the end of last year with stock funds so low. When should I stop waiting out the recovery? And when do I start trading the stock for cash equivalents? And all this money is in a retirement account, correct? It's all in a retirement account. Right. So if your money is in a retirement account and you don't have any tax ramifications when you sell stock that is within a retirement account, then it's a matter of what are you investing in. And is it giving you anything now given that it's in probably a 401K? Is that correct? Sarah that's exactly right. Probably because it's in a 401K. It's not invested in such a way that it's also giving income. So if I left my place of employment and I now because she left her place of employment, right. She's retired. Retired Lynn why are you leaving your money to begin with at your old place of employment? Within a 401k. It's not just should you buy stock, should you sell stock? It's also where are your retirement accounts held? And where should they be held? If you have money in a 401k at an old employer, the only thing that you can purchase are the mutual funds and possibly the employer's stock that they offer you. You would be far better off doing an IRA rollover with that money where you go to a discount brokerage firm, you open up an IRA rollover account, they contact your old employer, and your old employer sends them the check directly. You do not want to take possession of that money ever. Huge mistake if you do so, so just do it the way that I said. Wait wait wait wait wait wait. You need to just do a quick Suze School definition for me. What's a discount brokerage firm? So a discount brokerage firm is you have two different kinds of brokerage firms. Full service where a financial advisor is paid money to tell you exactly what to do. And they do that with your money with your permission. A discount brokerage firm is where you keep your money, but you tell the brokerage firm what it is that you want to do with your money, and therefore the commissions to do so are discounted. Because you're going to pay more money to a full service broker than when you do it on your own. Makes sense Sarah? Yes is a Vanguard a discount brokerage? It can be but more so something like a TD Ameritrade. Although you know there are full that within a discount brokerage firm you can also now have financial advisors. So it's gotten a little bit complicated but but a lot of people can absolutely do this on their um you're far better off having your money at a discount brokerage firm or even a full service brokerage firm if you need the aid of a good financial advisor, and you better know if they're good or not. However, because at a in a brokerage firm, you can buy individual stocks, you can buy stocks that give you a dividend. And that dividend could be 4, 5 or 6%. So now you're making income, even if the markets are going up, or the markets are going down, you don't really care because you're getting your dividends, and that's what you will need eventually to live on anyway. And it is possible that those dividends give you a higher yield than what you could get in a money market account, or a savings account. So when you're in a 401k, all you can do is buy mutual funds, or the employer stock. So there's not enough that you can do with that money. So the very first thing you should do, Lynn, isn't about what should your money be invested in, when should you start pulling out, no, no, no. The advice here is you should be first doing an IRA rollover with that money, and once you've done an IRA rollover, then you decide, do you want to buy individual stocks, do you want to buy exchange traded funds, do you want to buy mutual funds? What is the goal of the money that is in there? And if the goal of the money is to generate income for you eventually, then you might want to look at individual stocks that give you a good dividend yield. But that's complicated, Sarah because then how do you know they're good quality dividend paying stocks? And that's maybe one truthfully, a financial advisor would really be somebody that could help her. And that she could talk to and ask a lot of questions. You betcha. And you know, we have an episode from season one where you can talk about how to find a good quality financial advisor and some of the things you should think about. So maybe that's a good episode to listen to. And they are out there. They're hard to find, but they are out there. Um yes, they are, you are one of them. I'm still out here. You're still out here. People are still asking questions and you're still answering. Um this one goes back to the emotion, the emotion of money. Her name is Nadine and she saw her parents lose 50% of their portfolio a few years back in 2008 and it says it makes her feel terrified. She still has 20 years until she's retiring. But right now she's watching her 401k balance go down, down, down, down, down and she is like trying really hard not to push the button and take it all out into cash. And so what she's looking for is some advice on how do you know if she's making the right decision to stay or not stay and I want to just put one thing in your ear as you get ready to answer, even though you'll maybe choose not to listen to me. But you told the story to me the other day of somebody who left their money in CDs and savings account and was a very wealthy woman, being really ultra conservative in the stock market. So anyway, it made me think of her when I read this question. So in terms of investing, number one, here's what I would say. You don't always have to own a home, you don't always have to be invested in the stock market. You always just need to do, in my opinion, do what makes you feel secure. And if you're not secure in the stock market, stay out of the stock market. Who cares, you could be fine no matter what. But Nadine, here's what I want you to think back on. Your parents freaked out, they were down 50%, and they sold in 2008. If they had held on in 2009, 2011, all the way through to the end of 2018, they would have made all their money back plus a lot more money assuming they were invested in good quality investments. Mutual funds or exchange traded fund. And therefore, one of the biggest mistakes they made was, they sold, they sold and they also sold at a time when there was nothing to do with that money because interest rates were already going down, and what we're gonna do, and real estate was totally beside itself. And so there was nothing else to do. Now with that said, I understand that I said to everybody, if you are afraid, if you are insecure, then you should not be in the market. But we have not gone been going down right now 50%. I would not probably be saying that to you if we were already down 50 or 60 or 70%. But we're not there yet. So it could go down a whole lot more. But for you Nadine, you need to be so happy that this market is going down. You should not want your 401k balance to go up. If the markets go up, and I'm gonna say this again and again, when the markets go up, the price of the shares that you own go up as well. When shares go up in price, and then you invest every month in your 401k, the dollars that you are investing, buy less shares. Like would you go into a department store and would you see a sweater that you love that was $50, and would you say I'm gonna wait till that sweater is $75 to buy? And you'd be even happier if it was $100? No! What you say to yourself is, oh it's $50. Maybe it'll go on sale, and I'll get to buy it for $25, and you're so happy if that happens. The same is true with investing. You should be hif a share goes from $50 a share down to $25 a share. If you're investing $100 a month, and it's at $50 a share, you buy two shares. If the price goes to $25, you're able to buy four shares. So do you see as the price goes down, you get to buy more shares. The more shares that you have 20 years from now, the more money you will make. Fortunes are built by acquiring shares. So so no, do absolutely nothing other than continue. If you have 20 years, just keep continuing month in and month out in your 401k plan. Make sure you are diversified, you do not have 100% of your money invested in the employer's stock. Huge mistake if you're doing that. No more than 4% in your employer's stock, the rest in diversified mutual funds. I mean this is a classic time on her side and just be patient. That's right, that's right. And don't be afraid because your parents screwed up. Right. Don't take their fear on you. That's right, don't do that. So we have two more questions for you. This next one is from Margie. And she says her husband and her are 69 and 73, they have $100,000 to invest from selling their home recently, and this is their total liquid assets including savings. Now, their home’s paid for, they have no debt, and the only other asset is retirement funds, they have $350,000 in an IRA. So her question is how can we invest this to grow with time not on our side. So now this is the other end of the spectrum. If time is not on your side and you need income from this investment, like what? She didn't tell me Sarah what, she didn't tell me what she needed from this money. Does she need more income than the $350,000 in her retirement account is going to give her? What does she need from this money? But if time is not on her side and $100,000 is everything that she has outside of a retirement account, I have to tell you, I probably at this point in time right here today I would keep all $100,000 in a savings account making 2.2 or 2.5% interest. I would be very conservative because as they get older again, we don't know. Is one of them going to get sick? Are they going to end up in a nursing home? Is she gonna, we don't know. We don't know. We don't know. So I would be very, very conservative here if that is absolutely everything that she has. And it sounds like it is. All right. So let's go to the other side of the spectrum. Amanda. She's 25 years old, and she has a lot of student loan debt. She's now out of school. She's working hard to pay that off. She doesn't make a lot of money. But she says, I've heard you talk about compound interest, and the power of saving just $100 a month. With that little money left at the end of the month, how can I invest in the stock market? Did I hear you say that she has student loan debt? Yeah. She says I have a lot quote unquote of student loan debt. Girlfriend, you're not going to invest in the stock market here. You're going to invest in the known versus the unknown. One of the laws of money. The known is you have student loan debt. Student loan debt is the most dangerous debt that you can have because in most cases it's not dischargeable in bankruptcy. You didn't tell me the interest rate, but maybe it's 6%, 5%, maybe it's up there. Wouldn’t you rather guarantee yourself a 6%, 6.8% return on your money by paying down your student loan debt, then investing in the stock market and really not knowing what's going to happen shortly? Debt is bondage. When you have debt, you are not powerful. When you're not powerful, you repel people. When you repel people, people control money, you repel money. So at 25 years of age, your first goal seriously is to get out of student loan debt. If you're working for a corporation, however, that has a 401k plan or some retirement plan where they match your contribution, you put in a dollar they give you 50 cents, whatever it is, that's money you cannot pass up so that you have to do. But on your own right now, let's get rid of your student loan debt. I think that's really important um information you gave to Amanda to think about getting rid of her student loan debt and focusing on that first. So listen Suze, I've got one more question for you that I want to ask because it's January, people are thinking about their money and they're also thinking about tax season. Also they're thinking about it, I've heard these side conversations, we've gotten some emails because of the government shutdown. People saying wait are they not going to process my tax return? But one of the things that happens during tax season is people rush to fund their Roth IRA for the last year. And so the question is, are, are we making a mistake if we do that, not necessarily buying it, but the timing of the investment of doing it during tax season? So here's the thing. When you open up a traditional IRA or a Roth IRA, you have till April 15th of the year after your tax year. So for 2018, you have till April 15th of 2019 to fund your Roth or your traditional IRA. And if you do it that way, you're really making a serious mistake. Because you're missing out on 15 months of possible growth. So if you had invested your money starting in January of 2018, and you did it every single month throughout the entire year, you have an additional, and it continues on for three more months this you know the next year, you have 15 months of dollar cost averaging, and being able to take advantage of what's happening in the market and getting more money and more growth in there. Yes it can go down, but at least you're getting more money in it, believe it or not. And in the long run, 20 years from now, 30 years or 40 years, it can amount to thousands of dollars difference. So if you can, the correct way to fund a retirement account is starting right here, this month, January 2019, you should be funding monthly your Roth or traditional IRA for 2019 ao it's fully funded by the end of the year this year. If you're under 50 you can put in $6,000 a year, if you're 50 or older you can put in 7,000. So if you're under 50 you can start putting up to $500 a month away right now in in a retirement account. Obviously I love Roth IRAs if you qualify that's what you should have, if you are for 50 or older you can put in $583 a month. But start doing it now. Dollar cost average. Do not wait until April 15th of 2020 to fund your 2019 retirement account. Is that what you were asking, Sarah? That's exactly what I was asking. I mean and and how that math on that is $500 a month. It's $500 a month. Right now. We can start in January. We have the full year to fund it. But however, that's only if you're under 50, which many of us are not Sarah. Well, listen, there's two halfs of this co-hosting show. Your over, I'm under. So we've got it covered. All right. There you go. All right. What do you want to tell people now? Well, I want to tell everybody again. Just listen. We'd love to get your questions. We love talking about them. Suze and I spent a lot of time looking through emails and listening to voicemails. So, if you have a question for Suze, um for the show, give us an email at email@example.com or leave us a voicemail 877-545-SUZE. Now, here's the fun thing about the voicemail is not only might we play the voicemail on the show, but I happen to know Suze pretty well. And sometimes when she hears somebody's voice, she's like, Sarah, get them on the phone right now. So you might get a surprise phone call from Suze because sometimes it's like, really did that just happen to you? I don't know now. Next week, Sarah I want to talk about being a rabbit. I'm not gonna tell you what I'm going to talk about, but I just want you to think about next week. The topic is, are you are rabbit? You're gonna have to tune in to find out what I'm talking about. Until then you stay safe.
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