Podcast Episode - Suze School: To Buy or Not To Buy… I Bonds

Investing, Saving

April 20, 2023

Listen to Podcast Episode:

Do you invest for dividends or growth? On this special Thursday edition of Suze School, Suze gives us an update on energy stocks and then we get a lesson on whether or not now is a good time to invest in Series I Bonds.

Podcast Transcript:


Suze: April 20th, 2023 Suze O here and welcome everybody to the Women and Money podcast as well as everybody smart enough to listen.


Suze: All right, I am back and it seems like forever since we've spoken, doesn't it?


Suze: But I really wanted to do Suze School today because I know there are two things that are on your minds and those two things are, what should we be doing with oil, especially the stock P X D


Suze: and what should we be doing with series I Bonds. The question is to buy or not to buy or to sell or not to sell. Those are the two questions when it comes to I Bonds that you are all asking me. But before I answer those questions,


Suze: I just want to remind all of you that at six o'clock tonight, East coast time, three o'clock pm Pacific time, there will be a replay of the webinar that all of you requested that we replay that I did live on March 30th. It's hard for me to really comprehend


Suze: that about 80 or 90,000 of you will have watched this, but I'm so thrilled, I can't even tell you. Just please keep in mind it was live on March 30th, so things have changed a little bit, but keep listening to the podcast and you will know exactly what I have changed and what I haven't.


Suze: To register, however, for this webinar, just go to Suze, S U Z E Suze Orman dot com slash webinar. And that is where you sign up for free.


Suze: So let's first start with P X D and oil better known as W T I Crude.


Suze: What all of you have to really understand and it's almost like it's the theme of today's podcast as well


Suze: is you have to invest in the known versus the unknown.


Suze: That's what I've always told you.


Suze: And once you have an investment strategy, you have to know why did you invest in something to begin with? Did you invest because of the dividend or did you invest for growth?


Suze: So way back when, when the markets were going down,


Suze: it seemed very obvious that one should be investing for dividends because why lose a whole lot of money in your stocks going down and not being paid anything while the stocks were going down. While in fact, you could invest in certain stocks and get an extremely nice dividend such as P X D, which stands for Pioneer as well as Devon symbol D V N and really at the time,


Suze: the ETF for energy stocks, X L E, why not just do that?


Suze: So what's important for all of you to understand is that I'm sure it's very confusing, especially if we just look at the price of P X D for it was on February 12th of this year, not so long ago


Suze: that I gave a podcast on why, possibly if a long time ago you bought a stock


Suze: and now it's gone from like 69 to 169. I gave the example of Chevron and it's only paying you 3% right now on that.


Suze: Why not sell it? And possibly, especially if it's in a retirement account, which this example was buy something that will give you a whole lot more in dividends such as P X D. Now, when I gave that example,


Suze: P X D was at $220 a share.


Suze: Oil or W T I on that date was at $80 a barrel. Ok.


Suze: Then the next day, next two days, we saw P X D shoot up to almost $230 a share. And then very rapidly after that, it came down to about $186 a share around March 20th.


Suze: when W T I was at $67 a barrel.


Suze: When W T I Crude goes up the price of P X D in this example will also go up. You know, if you look back in history,


Suze: it was around, oh, I think around June 8th in 2022 when W T I was at about $122 a barrel and P X D was at $284 a share.


Suze: Back though to what recently happened


Suze: So here we were on February 12th and I'm sure many of you may have listened to that podcast and you went, I'm gonna buy P X D and you bought P X D


Suze: and then you very rapidly saw it go from 220 to 186


Suze: and then you were freaking out. You did not stay grounded in the truth of why did you buy it? Did I not tell you if you are buying it, you're buying it for the dividend. Did I not say that? So now you buy something at 220 you're still getting a very nice dividend at this time. It drops to 186. Why does it drop to 186? Because W T I Crude


Suze: dropped from $80 a barrel to $67 a barrel.


Suze: Get it everybody. But you now are, should you sell it? Should you buy more? What should you do?


Suze: You need to remember that when a stock goes down


Suze: and you buy it, the dividend yield, it will pay you if all you paid is $186 a share for it is far greater than if you bought it at $220 a share.


Suze: So if you are buying it for the dividend, it's now more than a month later. You know, I want you to dollar cost average into these markets. I do not want to see lump sum investments. You know, that


Suze: What would have prevented you from buying it at $186 a share?


Suze: To dollar cost average down and increase your dividend? Oh, I'll tell you what stopped you fear. You got afraid


Suze: and you forgot why you were buying this stock


Suze: And here we are. April 20th,


Suze: W T I is back at $80 a barrel


Suze: and P X D is back at $227 a share or really $7 more than it was on February 12th. Now, I've been talking about these stocks for a long, long time.


Suze: I've been telling you that if you're going to do it, you should be dollar cost averaging in it.


Suze: That doesn't mean that you need $284 a month to do it. Remember


Suze: through many brokerage firms, discount brokerage firms, you can buy slices. We have talked about all of this, everybody.


Suze: So let's say you had only $2000 that you wanted to invest.


Suze: There would have been nothing wrong with you taking $20 or $30 a month and buying a slice of P X D or whatever stock it is that you wanted to buy and every single month you just put that 20 or $30 in it over a year or two or $50 a month, whatever it is.


Suze: So you would never hopefully have just had $300 to your name or whatever. And that's what you bought and that's it. And then you stopped.


Suze: The way that you invest in markets like we are seeing right now. They are down, they are up, they are down, they are up. It is very possible that they could continue up here big time and then come way back down again.


Suze: But the only way for you to really stay involved is by dollar cost averaging in to whatever it is that you want to purchase and I will reiterate


Suze: if you wanted to do something like a P X D


Suze: and you didn't have a lot of money. And now the shares are $200 and all you have is $200 then buy a slice of it at $10 a month if that's what you wanted to do or invest a little bit in the X L E ETF. So you have some diversification as well.


Suze: But no, you started to freak out.


Suze: And then along with the fact that W T I started to go up, the rumors spread, what? That it's possible that Exxon may buy Pioneer. I still think that's just a rumor we'll see. But either way, Pioneer is an incredible company.


Suze: The same is true with Devon. The same is true with Chevron. In fact, out of all the energy companies, if you did not care about the dividend, because Chevron really has only about a 3.5% dividend. And I say only in comparison to P X D and D V N.


Suze: But out of all the oil companies, Chevron really is a leader in the industry and possibly one of the ones that you would invest in for growth while getting a little bit of income at the same time.


Suze: So the lesson learned here is you cannot count on me to tell you when should you buy, when should you sell? All I can do, because I don't know your individual situations.


Suze: I do not know the risk that you can take. I do not know what percentage of your entire holdings did you put here? Is it in a taxable account is in a tax deferred or tax free account? I don't know enough about it. I don't know when you bought it because let's say you just bought it outside of a retirement account. And I now tell you to sell


Suze: and you've only owned it for one month. Now you're gonna owe ordinary income taxes on it.


Suze: So all of those things go to deciding when you do or do not sell a stock.


Suze: So I am never going to come on this podcast and say, all right, everybody sell P X D. All right, everybody now that let's buy it, let's everybody buy it.


Suze: I am giving you the rules of the road,


Suze: The rules of the road with the caution signs and the stop signs and the yield signs and the speed limits mainly are all comprised of


Suze: what you need in your situation. But one rule of the road is all of you should be dollar cost averaging. Nobody in my opinion should have your foot on that gas pedal and you are speeding down that road and you have just put everything you have into it and that's all there is to it. No way, not here and not now.


Suze: So all of you need to make decisions as to where is your money invested? How long have you invested it? Are you writing this all down in your Suze notebooks?


Suze: What was the goal of you investing in these stocks?


Suze: How do you feel about it? Does it make you scared? Do you need money for something? And then you have to make a decision.


Suze: I've always said to all of you, if you hold a stock and you really don't know what to do. There's nothing wrong with selling half. Who cares, so sell half if that's your situation.


Suze: But


Suze: you cannot count on me to be telling you what to do. And I hope you understand why I can't. but I can tell you, I still like, W T I, I think it is entirely possible that W T I or oil or energy however you want to refer to it can absolutely go back up to possibly $100 a barrel.


Suze: I just think there are still too many things that could go wrong out there. Number one,


Suze: I think the United States has to refill its strategic petroleum reserve. You have OPEC that has cut down its production. You have many, many needs still for oil, for energy. So I don't feel uncomfortable holding it on any level. So I was actually happy when it went down to 186


Suze: because that in my head was like, oh hopefully people who were either afraid to buy it or are dollar cost averaging in like they should be what a great opportunity. Or maybe you were one of the people that bought a share two or three at 284 and then you just got paralyzed as it started to go down.


Suze: And then maybe you would have said, oh, at 186 maybe I should buy another two shares or one share or whatever it is that you already own


Suze: and dollar cost average down because then your average price would have been like 235 and you'd be almost even right now. Do you see everybody? So that's what you need to know about energy


Suze: You need to write down in your Suze notebooks and answer the questions. Why did you buy the stocks? What are your goals? Did you buy it for growth? Did you buy it for a dividend? Because I am here to tell you, there will be continued fluctuation. But this is still a sector that I believe in big time.


Suze: All right, let's go on to the next part of Suze School, which is to buy or not to buy Series I Bonds. And many of you want to know to sell or not to sell your Series I Bonds.


Suze: Let's just go back a little bit in time when I became I bond crazy. Seriously. It's all I talked about. Every interview I gave, it was about I bonds, I Bonds, I Bonds, I Bonds. And it really started back when inflation was projected to go up. It was so obvious. It wasn't even funny


Suze: and I Bonds at that time were giving 7.12%. Now remember


Suze: when you quote an interest rate, like 7.12% for an I Bond, that's an annualized yield.


Suze: So back then, even for six months, because the rates remember are only good for six months. They change every May 1st as they're going to do very shortly here and November 1st. All right.


Suze: So that meant for six months, one would get 3.56%. But with inflation going up,


Suze: it just seemed that was a no brainer. So I was like all of you continue to buy I Bonds, buy I Bonds. This is how you buy I Bonds, I Bonds, I Bonds.


Suze: So then the rate went to 9.62% annualized, which really broke down to a 4.81% for six months.


Suze: So between those two for the year, oh my God, you are getting such a great rate.


Suze: And then in November,


Suze: that rate then changed because now inflation started to come down. And now we were back at 6.89% or 3.45% because again, it's for six months. Now, not a bad rate but not a really great rate like it was because why? Inflation seems to be cooling


Suze: rather than heating up. So before it was a very easy decision, buy, I Bonds, buy I Bonds, it's ok. Even if you have to pay a three month interest penalty to get out. If you just wait enough until interest rates go down or inflation goes down, your three month interest penalty could be nothing and you'll be very happy that you did this.


Suze: But now the question becomes: ok, you have until about one week from now. Really you might want, if you're gonna do it, you need to do it sooner than later. Should you put more money into a Series I Bond right now at 6.89%?


Suze: Now


Suze: we already know that come May 1st


Suze: that probably the renewal rate that you will absolutely get if you invest at 6.89% right now or 3.45%, because remember you only get half of that


Suze: will be 3.38% right around there or approximately 1.89%.


Suze: I could go on and explain how they get these interest rates.


Suze: I don't care if you know about that or not. What I care about is that first of all that you understand when it comes to an I Bond


Suze: that your money is locked up for 12 months, you cannot touch it no matter what,


Suze: What I want you to understand about an I Bond, is that for the next four years, you cannot take your money out without what? Without a three month interest penalty.


Suze: I want you to understand when it comes to I Bonds and I don't care what anybody says. It's still a hassle to deal in most cases with Treasury Direct, not just to buy them, but to redeem them as well. Not the easiest thing if you changed your bank, for instance. Let's just say


Suze: that you're somebody who got afraid after S V B, the Silicon Valley Bank went up and, and whatever and you wanted to just change banks. But when you originally bought your I Bonds, you had to put the bank that the money came from, so that when you redeemed that would be the bank that the money would have to go back to


Suze: What if you voluntarily changed your bank from X to Y and that's not the bank that's registered with Treasury Direct dot gov. Now, we have a hassle, now we have to change it. Now, there are all these things that we have to do.


Suze: Those are the things that you need to know when investing in, an I Bond


Suze: And yes, I understand that I Bonds are tax deferred in most cases unless you sign up to pay taxes yearly, which is also a hassle truthfully, but it's tax deferred. I get that you never will pay state or local income taxes on it.


Suze: But it also could be quite a tax hit if you let these bonds sit like I have for many years now,


Suze: you know, over 20 years, lots of money is in there now and when I do go to redeem them, it's going to be a serious tax hit. So you need to understand all of those things.


Suze: If you were to buy right now, the new I Bond that's out there at 6.89% annualized or 3.45%.


Suze: You would also know that six months after you purchased it,


Suze: your money would be earning 1.89%.


Suze: All right. Not so bad, if you combined all of that, it's around a 5.4% interest rate.


Suze: But


Suze: is it really worth it? Because remember you also have that three month interest penalty if you need the money


Suze: for the next four years.


Suze: So, what I know about I Bonds at this particular point with new money is that it is not as attractive to many of you as it was a year or two ago. That's number one. Number two, it is possible


Suze: that you might be able to get higher interest rates in many, many different places. You have for instance, if you just want to compare apples to apples and stick with the treasuries, you know, you could do a one year treasury at 4.8% just saying right now,


Suze: which would probably be a little bit better because the money would mature in one year.


Suze: Then if you did this series I Bond and you needed to come out one year from now


Suze: with the penalty, maybe you'd be at 4.54 point four, something like that depending on what that penalty would be.


Suze: So I just don't know


Suze: if in the majority of cases, it's really, really worth it. Given that we know what the new rate is going to be. Now, you have two choices. Obviously, if you already purchased the I Bond for this year, then fine, no problem. You know that come May or six months from when you purchase your new rate for the next six months are going to be 189.


Suze: So the question really becomes, should you be purchasing an I Bond if you haven't already purchased your maximum for the 6.89 annualized or the 3.5% actual yield, knowing that you're only going to be getting 3.38% annualized or 1.89% actual.


Suze: And I have to tell you in the majority of cases,


Suze: I wouldn't be doing it. Remember when Sheila Bair was on the podcast


Suze: and I asked her outright, this was just a few months ago. Would you be purchasing these right now? Because remember she told us the story about how she did everything she could to get into the 9.62% one, for her son. Would you be buying again? And she said, no.


Suze: I don't know when I hear somebody like a Sheila Bair who was the chairman of the FDIC, et cetera, et cetera say no, I have to think deeply as to why would I, when there are so many other alternatives out there


Suze: that really would give you in the long run, access to your money without any penalties


Suze: as well as a really good interest rate.


Suze: And you are investing in the known because when it comes to a Series I Bond,


Suze: it's really, you're investing in the unknown, if you ask me. The unknown is what is inflation going to do?


Suze: The unknown, what is your situation? And can it change? And will you need access to that money? And then will you have to pay a penalty?


Suze: The unknown are so many things, in my opinion, with an I Bond . I've come to the conclusion, you can do it if you want to.


Suze: But I have to tell you not my favorite investment any more.


Suze: For those of you who purchased I Bonds at 7.12 annualized. Are you kidding? You are not going to sell those! You are just going to keep them. Do you hear me? So I'm not going to even answer those questions at all at this point in time. It's just ridiculous. Leave your money there unless it is a true emergency and you need to take it out.


Suze: If that is true,


Suze: then depending on where you are in your interest rate cycle, at least wait till you're three months into the new renewal rate at 1.89%


Suze: because then your penalty would only be half of the 1.89%. That's when you would redeem if you had to redeem. Also, for those of you who gifted I Bonds to your spouse or whoever and you haven't delivered them yet this year,


Suze: this would be a great time for you to deliver them, maybe.


Suze: Right, since maybe that person isn't going to be taking $10,000 and buying an I Bond now. So just something for you to think about. And again, there are many past podcasts that will teach you about gifting I Bonds as well as delivering them. So it's really very simple for me. I Bonds are not, let's do I Bonds, let's do I Bonds.


Suze: Sorry everybody, I'm gonna take a pass on them at this point in time


Suze: For money that you want safe and sound


Suze: is I'm not taking a pass on treasuries. I'm not taking a pass on certificates of deposits. However, I am changing a few thoughts about three and six month treasuries or CDs and what I was telling you to do before. When S V B went belly up, it really changed the landscape of interest rates,


Suze: credit all kinds of things for quite a while. And nobody really can decipher, are banks gonna continue to fail? What's happening in the economy? Everybody can give you their opinion. Before that happened, the strategy was, of course, interest rates are gonna continue up. Absolutely. So why lock your money up for a long time?


Suze: Just do a three month and a six month and when they mature we can go longer term.


Suze: Well, I've changed that strategy


Suze: And now what I think you should do is go a little bit longer term. Hey, if you are willing to lock your money up in a Series I Bond for a year, why not lock your money up in a one year Treasury or why not lock your money up in Alliant Credit Union's one year CD depending on your state that you live in your situation, but why not do that?


Suze: And in fact, what I did decide is this,


Suze: I sat down with Alliant and I had a long, long talk with them


Suze: and I do understand that for many of you, it is still very difficult for whatever reasons to buy treasuries. I get that for those of you that it's not ok.


Suze: But if you were to look at the interest rate seriously of long term treasuries, you would see that the interest rate goes down dramatically like a two year treasury right now is at like 4.2%.


Suze: So what I would like to see you do, believe it or not is take advantage of what I'm calling the Suze Ultimate CD Ladder Opportunity at Alliant Credit Union. Again, I am going to reiterate, I do not make one penny if you do this


Suze: but I am sticking with Alliant Credit Union because I know that your money is safe there.


Suze: I actually don't care and I want you all to listen to me right now. I don't want you to be investors that you go for, oh, I could get 4.15 here. I could get 4.35 here. I can get this here that here and you are changing your money all the time.


Suze: You're going all the hassle to do that.


Suze: I want to know


Suze: not that you have a high interest rate that maybe somebody is offering you and then they lower it. I want to know that the financial institution that you are invested in isn't going for the highest rate, everybody,


Suze: But they're going for the safest rate to make sure that if there was ever a run, if anything happened, that financial institution would be absolutely safe and sound because they didn't extend beyond a comfortable interest rate. It is really just that simple and I know that is true with all credit union.


Suze: So, in talking to them, I said, you know what I really would like people to do right now.


Suze: I said they could either invest for that one year at 5%. That's fine because if you look around, that is one of the highest interest rates on a 12 month certificate of deposit right now. Or I would like them to have a ladder.


Suze: I would like them to be able to invest in a six month, forget the three month now because it's too short term that they could do a six month, a 12 month, an 18 month CD.


Suze: So that every six months there was money coming due


Suze: and then we could see what happens where interest rates go. If they happen to go up, then the six month gets reinvested again. If they happen to go down, at least we have a 12 and an 18 month.


Suze: So the interest rates currently


Suze: on a six month CD at Alliant Credit Union is 4.75%.


Suze: The 12 month is at 5% and the 18 month is at 5.15%. And again, I don't think you'll find that 18 month rate anywhere.


Suze: So that is the ladder that I'd like to see you do. Hey, if all you have is $3000 to your name,


Suze: you could put $1000 in each one for those of you who still want short term. All right, the three month is at 4.50. Still easy to buy to do whatever you need to do with it. You do this by going to my alliant, that's A L L I A N T


Suze: my alliant dot com slash ultimate. That's something that I would like you to do because then you would be averaging really close to 5%. But with still liquidity to your money coming due every six months. Obviously, the three month is still available to you. Not a big deal. And I just want to say for all of you who are wondering what should you do


Suze: with the three month when it comes due? You're still about one month away.


Suze: I will tell you what the renewal rates will be. So then you'll be able to make a decision if you just want to do three months again, but just sit on it for now.


Suze: All right, those are my thoughts.


Suze: Did I drive you all crazy with them all? But now you know what I am thinking. All right, this Sunday we did a little switcheroo on you, KT will be here to do what? Ask KT and Suze Anything and then we'll be back on schedule next Thursday with Ask KT and Suze. But now, you know, so


Suze: there's really only one thing that I want you to say every single day. And it is this today, wherever I go, I will create a more joyful, peaceful and loving world. And if you do that, I promise you you will be unstoppable.


Music: Music Out.

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