October 29, 2022
Listen to Podcast Episode:
Suze starts this podcast with an update on Series I Bonds, tech stocks and the stock market in general.
Suze: October 29, 2022. Welcome everybody to the Women & Money podcast as well as everyone. And I do mean everyone smart enough to listen. All right, Suze O here.
Suze: the I bond frenzy is over. If you didn't purchase an I bond, a Series I bond prior to really October 26, 27th, right in there,
Suze: you do not qualify for the 9.62% annualized interest rate anymore. That will change on November 1st of this year, probably to 6.48%. Remember those are annualized yields. Interest rate on I bonds are only really good for six months because they change every six months.
Suze: So you always divide whatever the current yield is by 2, to know exactly what your money will earn. One of the questions that I've been asked is Suze, if I purchased an I bond, $10,000 of an I bond, and locked in the 7.12% interest rate annualized,
Suze: which was what was offered November of 2021,
Suze: how much money would I actually earn in interest if I qualified for the 7.12%, the 9.62% and the 6.48% that is coming up?
Suze: Just to make it easy on you and not go through all the calculations, after you have owned that I bond for 18 months, and if you invested $10,000, you will have earned $1,208 on your I bond.
Suze: That is what you need to know. How did I get at that number?
Suze: If you invested November 1, 2021, all the way through about April 28, 2022, you would have locked in 7.12%.
Suze: Half of that is 3.56%, so for those six months you would have earned $356. You need to know that interest compound semiannually on an I bond.
Suze: So now you would have $10,356 in there
Suze: to earn for the next six months, 9.62% interest annualized, or 4.81% actual interest. 4.81% interest on your $10,356, you will earn $500 of interest for those next six months.
Suze: If you stay in there and then you earn 6.48% annualized,
Suze: which is 3.24 actual interest, you will earn for those six months, $352. So in totality for the 18 months you would have owned this bond,
Suze: you will have earned $1,208. So I hope
Suze: that solves that question. Why was it so hard for you to buy an I bond lately? Why was treasurydirect.gov crashing?
Suze: I just want you to know that in the past week, not even a week, right. Almost $1.9 billion of I bonds was purchased. That was almost twice the amount of I bonds that was purchased in all of 2021.
Suze: So all of you finally got on the I bond bandwagon. Now. I just want you to slow down with your I bond purchases. While it is true that 6.48% is a great interest rate still,
Suze: we do not know what the interest rates are going to be come May of 2023.
Suze: So I bonds have been fabulous for the past few years depending on inflation, we will have to see where they go. So I have to tell you, I am not as gung ho right now on I bonds as I was starting a few years ago when I first started to talk about them.
Suze: So I don't have a problem if you buy this series at 6.48,
Suze: but just let's watch where interest rates go after this, because if inflation goes down but interest rates still stay up,
Suze: in Treasuries and other investments, if the market happens to go seriously down and dividend yielding stocks are paying you more than what an I bond possibly can be giving you in the future, we may change course. So just because I have loved series I bonds now for a long time,
Suze: doesn't mean that I'm always going to love them. So you have to stay tuned. Got that everybody? Next. I have been asking all of you to consider Treasury bills and notes as a possible alternative to even investing in the stock market. Because many of you could absolutely get 4, 4.5% on your money
Suze: safe and sound guaranteed by the authority of the United States government state tax free. Fabulous. Why would many of you want to go into the stock market with all of its fluctuations? And then I'm sure given what's happened in the past week or so,
Suze: you're like Oh my God, I've got to get back in the stock market. Are you kidding me? Look at what it's done. Like the Dow Jones industrial average is up almost 15% just for this month alone.
Suze: As you know, a week or so ago, maybe two weeks ago. I said it would not surprise me if this market went up. And it went up that week. I then said to you, it would not surprise me if it continued up for two, three or four weeks. It is probable that it will most likely do that. Which it is doing and it has done.
Suze: However, I will reiterate that even though it is going up right now and could continue to go up,
Suze: eventually I still believe that it will come back down. Now listen, I hope I am 100% wrong. I hope this market goes up and up and up, and that many of you make a whole lot of money and you feel secure all over again because your 401k plans have come back, your IRAs are back, you just are happy again that way.
Suze: I'll have to believe it to see it. Because I personally think long term
Suze: the bias of the stock market will be down. A lot of you may be noticing
Suze: that yeah the markets have gone up, but your stocks have not gone up at all. In fact many of your stocks have actually gone down considerably this past week.
Suze: Are you invested in Meta? Which is the new name for Facebook. One of the more disastrous weeks I've ever seen. Was down 29% in just one day. Amazon was down. The only stock that was up a little bit. Technology stock was Apple.
Suze: But most technology stocks that many of you made a fortune in over the past years, are totally out of favor right now.
Suze: The reason that you see the Dow Jones industrial average, which is really only 30 stocks, it is not a massive index by any means, 30 really large blue-chip stocks, that is up is because it's not made up of a whole lot of technology stocks.
Suze: It's made up of conservative blue-chip stocks that are all over the place. But is that how your investment portfolio, is that how you are invested? Are you mainly invested in
Suze: technology stocks like Salesforce, Crowdstrike, Amazon, Alphabet. All those stocks that were really the bedrock of all the gains in the stock market over the past few years. One of the crazy things about our indexes is that it is possible like what the Standard and Poor's 500 index,
Suze: that the top few stocks, mainly technology stocks, the top holdings in those indexes account for the majority of the increase or decrease of that index. Which is why it is extremely important when I talk about diversification, that you are diversified across the entire area of stocks.
Suze: That you do have technology stocks, but you also have stocks that are really invested in every day things. All right. And so you might as an experiment, and I could do it for you right here but I want you
Suze: to start to be independent where you know how to make decisions on your own. I want you to go and just look, what are the stocks that make up the Dow Jones Industrial Average that cause that index to go up so high? What are the stocks that make up the Standard and Poor's 500 index? The top stocks. Compare the top 30 stocks of that,
Suze: to the top 30 stocks of the Dow Jones Industrial Average. Then also the third index that we always quote is the NASDAQ. And the NASDAQ especially 100, look at the top 30 stocks that are made up of that index.
Suze: And then you will get a feeling of essentially what is happening right now in the stock market.
Suze: Now do I think if you are heavily invested in tech,
Suze: that it's just over for now? I kind of do, I have to tell you. I think it's possible that Amazon could come back somewhat.
Suze: Apple, they're loving Apple stock. But the other stocks, if you're heavily invested in tech, you may have to wait a while. Quite a while. That includes the AK Innovation fund, everybody. You may have to wait a while to recapture any losses that you have in those companies.
Suze: We are approaching the end of this year, believe it or not. We have two months left. So what many people are doing right now that will affect all of these indexes by the way, is they are doing something called tax lost harvesting.
Suze: And what that is, they are selling their stocks right now,
Suze: or their index funds, whatever they're invested in, and they are taking a loss on their taxes. And many of them are also selling their stocks that they have tremendous gains in.
Suze: And they are offsetting their gains so they don't have to pay taxes on them, with the losses that they have.
Suze: Then they most likely will reinvest again in the companies that they want to own. What you have to know is if you sell anything, and this is all outside of a retirement account just so you know, retirement accounts, you don't get to take losses.
Suze: So outside of a retirement account, what you have to know is that if you sell any stock that you have a loss in, because you want to use that loss to offset any gain that you have, you cannot buy that stock or even a similar stock really,
Suze: within a 30 day period of time. So the government does not allow you to sell a stock,
Suze: and let's say you have a stock such as Meta. And you have a significant loss in that stock.
Suze: And you sell it.
Suze: You cannot buy back Meta for at least 30 days. Alright, everybody? That's called the 30-day wash rule.
Suze: So these are little things that you need to know. So even in my own portfolio right now, I am selling stocks that I have losses in to offset some of the stocks that I have tremendous gains in still,
Suze: and once I have done that, then I will go back in, and I can immediately go back in, and buy the stocks that I sold that had gains and there is no 30-day wash rule for gains. So it only applies to stocks that you are selling for a loss. So you're taking that off taxes. When you have a gain that is offset by a loss,
Suze: you can go back in and immediately that same day buy that stock back.
Suze: So that is what I am currently doing in my own portfolio, just so you know. For those of you that it may apply to, you may want to consider doing that as well.
Suze: Treasuries. As you know, I've told many of you that I really like Treasuries,
Suze: and should you be buying them or should you not at this point in time. So many of you are writing me and saying, is now the time to buy a 20 or 30 year Treasury bond and lock in those interest rates? If you are purchasing Treasury bills and notes,
Suze: I don't mind if you do so. In fact, I would love if you do so, but do not go out a lot further than five years. If you're going to buy Treasuries, I do believe you are going to see the interest rates on Treasuries start to come down,
Suze: and possibly the 10 year could go all the way down to 3.5%, but I think eventually interest rates will once again turn around, and you could very easily see long term Treasuries at 5.5%. When you see them possibly around there, that is when you would go in and purchase a 30 year Treasury bond.
Suze: There are more ways for you to make money than just simply buying stocks and watching them go up or down, or whatever it may be.
Suze: When interest rates go down,
Suze: the price of bonds will go up. The longer the maturity of the bond, listen closely to me,
Suze: the longer the maturity of the bond, the more it moves up or down.
Suze: So if interest rates go up in the world, bond prices go down. If interest rates go down, bond prices go up.
Suze: But what determines how much they go up or down is dependent on the length of the bond. A 30 year bond will go up and down more depending on interest rates than a one year Treasury note. And many of you saw that happen in the bond funds that you owned that had long term maturities in that bond fund.
Suze: Therefore I want you to remember this lesson. Because there will come a day when interest rates go up again in my opinion, and you can get a long term Treasury, meaning 20 or 30 years, for about 5.5% or so.
Suze: When that happens, and eventually interest rates will come back down, not only did you lock in a great interest rate on that Treasury, but as interest rates go down, the price of that bond will go up, and up, and up.
Suze: And then you have a decision, if you want. Do you want to sell that bond in the open market and take your gain there, like you would a stock, or do you just want to hold it and keep the 5.5% interest or whatever interested is that you locked in? I always go back and tell you the story about how back in the early eighties when 30 year Treasury bonds were like selling for 14.5%,
Suze: I had my clients buy 30 year Treasury bonds. So for 30 years they would have made 14.5% interest. And remember, Treasuries are state income tax free.
Suze: So as interest rates went down and down and down, the price of those Treasuries skyrocketed. There was a time when people almost could double their money,
Suze: and they sold the 30-year Treasury bonds, and repurchased them and locked in like a 6% yield. But on almost twice the amount of money. So really,
Suze: they were making almost as much as if they had just kept it. So there are many things that you can do with Treasuries. So I want you to start educating yourself on them now. Again, I do not have a problem for right now, if you do a Treasury ladder, maybe you buy a three month, a six month or one year, two year, maybe up to five years. But don't go out further than five
Suze: years, okay? Preferably you would stick about the two year note length. Currently by the way, their pain about 4.5%, which brings me to another question many of you are asking me.
Suze: You are being offered single premium deferred annuities for about 4.5%. And you really think that is a really great deal. Somebody wrote in, Kimberly, you know that's you. And you asked me the question
Suze: that you were considering buying a single premium deferred annuity with 70% of your IRA rollover that had $1 million dollars in it.
Suze: You had a choice of buying a 3, 4, or 5-year single premium deferred annuity, and the rates would have been 4.6, 4.8, and 5% respectively.
Suze: Now. You say in this email that you know I'm not a big fan of annuities. Well, that's not exactly true. I actually love single premium deferred annuities. But it makes absolutely really, very little sense to buy a single premium deferred annuity, again an annuity is a contract with an insurance company,
Suze: and as long as that money is in there, you do not pay income taxes on it. The income taxes are deferred. Also, most annuities come with a surrender charge. Which means you cannot get at your money without a penalty before the surrender charges up.
Suze: But to buy a single premium deferred annuity within an IRA that is a tax deferred account, doesn't make a whole lot of sense given what interest rates currently are with treasuries. But this person wanted to know, is this a good investment because she wants her investment to be safe and sound.
Suze: What all of you have to really understand if this kind of investment is being proposed to you, is that unlike a Treasury that is guaranteed by the authority of the United States government, or even a certificate a deposit,
Suze: that's guaranteed by FDIC Insurance, or a certificate of deposit that happens to be at a credit union that is also insured by NCUA, but annuities also are protected
Suze: and regulated by nonprofit insurance guaranteed associations at the state level. Now listen to me closely. Kimberly wanted to put 70% of her million dollars, or $700,000 in this annuity.
Suze: Annuities that are guaranteed by the state guaranteed association, will pay claimants in the unlikely event that insurance company becomes insolvent and can't pay you, but their coverage is limited and it varies by state by the way, to only $250,000 just like the NCUA, and the FDIC.
Suze: So nobody under any circumstance, whether it's a certificate of deposit or an annuity, should put more than about 225,000 or $230,000 in there, so it can earn interest and maybe build up to $250,000,
Suze: but on no level should you be putting $700,000 into what? Into one company. Would I tell you that you were able to put $700,000 into Treasury notes? You bet. As you know myself, I have put millions to keep my money safe and sound
Suze: into one Treasury note. I don't have a problem with that. Guaranteed by the authority of the United States government.
Suze: So why would any of us take a chance on putting more than 200 and some odd 1000 into any vehicle, when right now, interest rates on Treasuries, are seriously almost the same as what everybody else is offering you, or maybe even better.
Suze: So all of you before you do anything, I really want you to go and check out what is the current interest rates today of Treasuries. And you'll find that one year they’re at 4.5%.
Suze: Number one, number two. Remember what I just taught you. If you lock in a high interest rate and interest rates start to go down eventually, the value of that Treasury will go up and you can sell it in the secondary market. Very easy to do. Especially if you have an account at a discount brokerage firm.
Suze: And therefore, you could absolutely make money on this investment. Again, with a Treasury, what can you do? You can buy, you can sell it anytime you want, no surrender fees, no danger of them defaulting on you.
Suze: So can you just look at your alternatives?
Suze: Oh God, I'm already almost out of time. However, I briefly just want to tell you
Suze: what you need to know now about inherited IRAs. Now this is a topic I could take all 30 minutes of this podcast up with. However, a little bit ago, I don't remember the exact date I'm sorry but I did an extensive podcast on inherited IRAs. And here is what you need to know.
Suze: There had been a law that was passed in 2019 known as the Secure Act. And the Secure Act simply said, you can no longer if you inherit an IRA, stretch that IRA over your life expectancy.
Suze: The most that you could leave it in there would be for 10 years. Now there were five exceptions to that rule. The five exceptions were if you were older or not more than 10 years younger than the person who you had inherited the IRA from,
Suze: If you were surviving spouse, if you are chronically ill, if you were disabled, you were a minor child of that owner of the account, and that was until you were only 21 years of age. And those were the five what they called eligible designated beneficiaries, which means this did not apply to you. Also, if you inherited an IRA before 2020, this does not apply to you.
Suze: And so everybody was fine with that. They thought they would inherit an IRA, and they would just leave it in there for 10 years, and then take it out if they wanted to. Then on February 23rd of this year, the IRS in its wisdom, totally changed things. And they said,
Suze: that if you inherited an IRA after 2019 and the owner of the IRA was already taking required minimum distributions from it, or they were of age to take required minimum distributions but hadn't started yet,
Suze: that when you inherited it, you had to take out the required minimum distribution for 2021, as well as 2022. Many of you did not know about that, and if you didn't take out the required minimum distribution according to the IRS,
Suze: they were going to assess you a 50% tax penalty. And you didn't even know about this until this year. And you're thinking to yourself, nobody told me about it. So all of you and many people, there was a total uproar about this. All right. Here's what you need to know. On October seven of this year,
Suze: they came out with a new bill. It's called 2022-53, which waves the 50% penalty for all of you who did not take out the required minimum distributions on your inherited IRA, where required minimum distributions from the owner had already started to occur. Or the owner
Suze: needed to start taking required minimum distributions because they were of age to do so.
Suze: So all of you are safe. You just need to know about that, you don't have a 50% penalty. So that's the good news. The bad news is, they're not going to come out with final regulations until 2023.
Suze: So at that time, I will do an entire podcast on inherited IRAs, and how they absolutely, definitely work, and what you need to know about them. Until then, there's really only one thing that I want for you and your money, and it's for you to be safe, strong and secure. See ya Wednesday night. Bye bye, everybody.
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