Podcast Episode - The False Wealth Syndrome


401k, CDs, Credit, Do's And Don’ts., Investing, Retirement, Roth, Saving, Savings Account


January 23, 2022

Listen to Podcast Episode:

Suze starts this podcast with a recap of what happened in the stock market last week. Then, we get a lesson on why it’s so important to stay the course with our investments.


Podcast Transcript:

January 23, 2022. Well, how are you feeling out there? Did you watch the stock market last week? Mm hmm. I bet you did. Did you watch crypto currencies last week? Oh, I bet you did. And every possible financial asset like that really got obliterated in most cases. I mean we have one of your favorite stocks that many of you, I'm sure owns Netflix that lost over 100 points in one day. Just one day it went down over 20%. Now that starts to be a big deal. Because when that happens, everybody gets nervous and everybody starts to sell everything. So, as we are doing this podcast this morning, the NASDAQ, which is where most technology stocks trade is officially in a correction which means it has gone down more than 10%. Now I’m sure many of you are wondering Suze, what should I do? Oh my God, I don't know what to do. Can we just take a breath here and think logically about this if you have not sold as of yet? Now is not the time to sell, I have to tell you, it actually is too late shortly here. Not yet, but shortly here it will also be the time to buy those stocks and investments that you've wanted to buy. But they were just too overpriced. And now they're coming back down into line. So, I want you to think about this as you go into a store and you see something that you really want to buy. Whether it's a piece of clothing or jewelry or shoes or whatever it may happen to be and you look at it and it's like, oh my God, I don't want to pay that much money for that item, I don't feel like it's worth it. And then all of a sudden you see you go back into that store and now it's marked down by 50% it's marked down by 75% and you look at it and go, oh I'm willing to buy that now and you buy it. So, you get the exact thing that you wanted for a whole lot less money because when you wanted it, it was too expensive. Now there are many individual stocks out there that ran up too fast and really for no apparent reason because financially, except for the fact that all of you wanted those stocks, their earnings and their numbers did not dictate that they should be trading at that high of a value. And those stocks, well they had it handed to them in the past week or two. Now there are other stocks out there that are fabulous, fabulous companies and those stocks have also suffered not because they're not doing that great, but because everybody who owns stocks panicked started to sell. So, all the stocks started to go down, I mean look at amazon, amazon closed at 2,852 amazon is high. Just not that even long ago, you know was all the way up at like 3,800, something like that almost 1,000 points higher than where it is now is amazon a fabulous company? Yes. Does amazon earn money? Yes. Is amazon going to be great again one day? Absolutely. I mean look at Apple. Apple is training or closed essentially at about $162 down from $182. All right, Apple is one of the greatest stacks out there. And now it's becoming more and more affordable again, I don't think that you should be buying individual stocks right now. You might want to nibble on them. But I think they are going to still get cheaper. It would not surprise me if these markets continue down to probably the middle of February. We'll see. But there are many, many companies now that are really entry points of where you wished you could have bought those stocks a long time ago, but for some reason you didn't. So, should you be freaked out that this happened? Well, listen to me closely again. Now if in fact you have done what I've asked you to do and what I've asked you to do is very simple. I've asked you to make sure that if you are invested in the stock market that you have at least five years or longer until you need that money. I've also asked you that if you're invested in the stock market to make sure that you are diversified, which means your money is in an index fund of some kind or if you are buying individual stocks that you own at least 20 to 25 shares of those individual stocks and that those individual stocks are in different categories. They are diversified. You don't own 20 to 25 technology stocks; you are diversified with all kinds of different stocks and that your dollar cost average into those index funds or ETFs. Or whatever it is that you're investing in that way and stocks. So, when these kinds of things that are happening in the market right now happen, you're not that hurt. So, I get it. I get that it's hard and I get that a lot of you are really angry at your financial advisors, but here's the problem everybody, your financial advisors really aren't to blame here. The market got hit because why? Because interest rates are projected to go up because of inflation, all of these things. And it happened so quickly that really incredible companies really got hurt so badly. It's not even funny. So if you have time on your side and again, you're invested like I've asked you to be invested and you have really good quality good quality stocks that are making money stocks that are trading at low multiples stocks that are projected to earn 20 to 25% a year in the future. All right. You may, like I said before, want to start nibbling on some of those stocks, but I want to give us a different overview of really, what I think also is happening in a very strange way and I think it's going to affect the markets in the future as well, not only the stock market, but possibly the real estate market two. I call this the false wealth syndrome and the false wealth syndrome is that when we experienced what we've experienced for the past 10 or 15 years now where the market has done nothing but go up and up and up. You bought a home and it has been going up 14 to 20% a year. And so, you have these assets, you have stocks that you own money in your retirement accounts, you have a piece of real estate, maybe two pieces of real estate. And on paper you look at what you are worth, and you go, oh my God, I bought a house at 700,000. It's now worth 1.2 million. Oh, my 401k plan has $500,000 in it. My stock portfolio has money in it, whatever it may be, you start to feel wealthy, you do this thing of, oh I am worth so much money. And when you feel wealthy you feel secure and when you feel secure, you feel powerful and when you feel powerful, you go out and you tend to do things such as, oh, I can now afford a new car, oh I can afford a bigger home, I can afford another piece of real estate and you start to spend money that you normally want to spend if you didn't feel like you had all these assets backing you up. Now, when you spend more money vet, what starts to happen is the economy does quite well because when you spend money, you're buying things, when you buy things, you're buying them from companies, many of those companies that are listed on the stock exchange, those companies then start to make more money and when they make more money, their shares go up, when their shares go up that are on the exchange and you happen to maybe own those shares or they're part of the index funds or whatever, everything starts to go up and you then start to feel more and more wealthy until what's happened the first month here in January of 2022 where many of you now have seen a decrease in your portfolio that is substantial. Now, when you feel like all of a sudden you aren't as wealthy as you were, then all of a sudden, this wealth syndrome or the false wealth syndrome starts to kick in. You don't feel as secure, you start to feel more afraid, you don't know what's going to happen in the future, All the gains that you had in, certain stocks are gone and in fact maybe you have less in your portfolio or in your accounts than you even put in, depending when you started to invest and now because you don't feel wealthy and anymore and you actually feel insecure, which makes you feel more powerless. You then start to stop spending. You don't go out to eat as much you decided, oh maybe I can't afford that larger home that I was thinking about buying and you start to pull back all of that is also happening at the same time when the federal government, the Feds are starting to raise interest rates and you're going to see that happen this Wednesday. Now, what's going to happen this Wednesday is that to curb inflation, which is making everything more expensive for you, you’re going to see the Feds raise interest rates. The question is, how much are they going to raise them? Are they going to raise them a quarter of a percent or half a percent? And how many times this year are they going to raise them? And one of the reasons again that the stock market has been going down is because it is obvious that interest rates are going to go up now when interest rates go up, how that affects you also. And how that affects companies is that it costs them more to borrow money to build their companies out, It's going to cost you more to finance a home to finance a car, If you are in credit card debt, your interest rates very well may go up. All of those things are going to happen and when all of those things start to happen, it also slows down the economy because you stopped buying because it costs you more to buy and when you stop buying that inflation starts to come down. But what also happens is these interest rate increases are absolutely affecting the stock market. Now. I think that doesn't really matter what happens on Wednesday because the stock market has already felt it and it's feeling it. So now we're back into reality on some point now, could this affect the price of real estate going forward? Possibly? It could, I don't know. We'll have to see what happens here. We'll have to see what happens with interest rates. But overall, we're now in a situation where you just have to take your time before you do anything. A lot of you are writing me and say Suze, I just sold my home. I have $300,000 in cash. I don't know what to do with it. I need to invest it. There is nothing wrong with you keeping cash. You know, and I just have to say this, One of the reasons that I was so thrilled to be able to have Alliant Credit Union sponsored the podcast is that I wanted to introduce to you Alliant Credit union. I wanted you to know about a place that you could go and deposit money that was safe and sound and get the highest interest rate out there that is currently available and that's what Alliant offers you. And so, I don't care if you take advantage of the ultimate opportunity savings account, although you should but if you have larger sums of money you're looking to put it somewhere just to keep it safe and sound. I knew one day that this was gonna happen. I actually I'm sorry to say that it was going to happen last April if you remember. Alright, I was too soon on that but here we are now, here we are now. I wanted you to be introduced to a place that would be safe and sound and that if interest rates start to go up and I don't know if they're going to or not then I'm sure alliance will continue to be the leader and giving you the highest interest rate out there. Now I don't know if that's going to be true or not, but I bet it is. So that's why it's important that you have a place to keep money. A safe place, A place that cares about you. Also, that is why I introduced last year before anybody else was talking about it. Series I bond to you. There is nothing wrong with you taking $10,000 of your money and putting it in a series I bond right now. Can you do so simply by going to Treasurydirect.gov again. I just have to say if you're going to open up an Alliant credit union account, go to MyAlliant.com because then you're under a special thing which is with me and then we get to offer you all kinds of things that in the future I'm sure you're gonna want to participate in. So, can you just do that for me? Actually, forget I just said that can you do that for yourselves? I promise you will not regret it. So, we're in this situation right now where psychologically people are freaked out and it's not just by the way everyday investors, it's, I've talked to more financial advisors last week than I wanted to. They're all freaked out. They're all sick to their stomach, they're calling their clients and they're saying listen you have great companies, you just gotta hold on that will be okay. But it could be 3 to 5 years before we're okay again. So financial advisers are freaked out everyday investors are freaked out. And so that is where you need to not be freaked out. Like I said, good opportunities are coming but I would wait a little bit before I purchased anything and if you are going to purchase anything other than an index fund, which I don't have a problem with, if you're dollar cost averaging into it. If you're going to purchase individual stocks again, I'm simply asking you to make sure that your companies make money, they do something, they're not one of these companies that came to the market last year that you know, they're based on what they're going to do in the future and so on and so forth. Now there is a stock that I've mentioned that I like, and that stock is UpStart and that stock has gone from 400 it's now at 90 in the nineties. Everybody here's what's important when you look at a stock like that or any other stock, you cannot look at a stock and say oh it was at 400 now, it's at 90 and it's a good buy. No, you have to look at it and go, is this a company whose product I believe in? Is this a company that will be earning money or that is earning money? Is this a company that's projected to grow now? I will admit that UpStart is a seriously speculative company and most of you should probably not be in it. But in the long run it's a company that I like, does it freak me out? No, because I kind of knew that this is going to happen to it. So, I'm done buying it for now and now I'm just gonna wait and see what happens. But those are things that can go wrong and eventually, hopefully it will be right. So, when you look at a stock, the point of what I'm trying to say to you is when you look at a stock do not judge a stock on it's down 400 to 90. Look at a stock at 90. And is it worth $90 a share or not? Or should you just wait until it goes even further down to a price that you feel it's worth it? Alright next I just have to be, and I don't care if I'm going to go longer today because today is really an important podcast. I want to talk about Bitcoin and Cryptocurrency here. The same thing applies you bought Cryptocurrencies if you listen to me with money that you could afford to lose number one because we don't know what's going to happen to crypto currencies the government can get involved, anything can go on. My two Cryptocurrencies are the three actually that I like our Bitcoin, Ethereum, and Solano. Those are the only ones that I like. I'm sure there are other ones but those are the ones that I like now all of them have been seriously affected. Am I upset about that? No because again did I not say to you that when you have cryptocurrencies it's called hobbling; Holding on for dear life that you have to hold on because they're going to go up they're gonna swing all the way back down they're gonna go up but you have to hold on for the long term. So now Bitcoin and Ethereum and Solano are back down in the you know what I mean? Bitcoin is under $40,000 now and now maybe you want to start dollar cost averaging into that with money that you can afford to lose as well as you're going to hold this for the long run. So again, now we're being given a chance if you believe in cryptocurrencies that maybe you now are like oh now my money's going further in it. But now all of you are freaked out because again you were thrilled when it was at 69,000 because of the false wealth syndrome. It made you feel so happy. It's not even funny and now it's all the way back down again and now you're feeling miserable but you shouldn't be feeling miserable if you are an investor in cryptocurrencies and you think in the long run they are going to work again. Just something to think about. I need to talk to you about bonds and I need to talk to you about them because a lot of you are so confused about what am I telling you to do with bonds now. The first thing that you have to understand is I don't have a problem with individual bonds because individual bonds all have a maturity date which means when you buy them, you get a specific interest rate and you get that interest rate until that bond matures and then you know you're going to get your money back with that said I don't think it's a good time right now to be buying individual bonds because I do think if you wait a little bit interest rates are going up and maybe you'll get a higher interest rate that you can lock in. What I have a problem with happens to be bond funds and bond ETFs. Because bond funds and bond ETFs do not have a maturity date. So, when interest rates go up the value of your shares go down and you don't know if you're ever really going to get your money back or not. So that's the difference between those two. Again, I'm going to reiterate this. You want to buy individual bonds. Okay you want to buy bond funds or bonds ETFs would be careful right now about doing so. However, when you are in retirement accounts at your employer there are very few places that you can invest for safety. Usually they offer you upon fund a standard and Poor's 500 index fund and so on and so forth. That is why listen closely. Now when you retire, or you leave your employer you should in most cases do and IRA rollover with a discount brokerage firm and the reason why is that within a discount brokerage firm. Now you have a variety of investments that you can choose from including individual bonds, individual bonds such as Treasury bills, bonds, and notes. You could also do money market accounts, Money market funds, maybe even CDs, there are all kinds of things that you can put your money in that your retirement account at your old employer does not offer. So, you can keep this money safe and sound again, you can do individual bonds versus bond funds because I still don't like bond funds. But if you're going to do a bond fund for whatever reason to a short-term bond fund. I also just have to say one thing here. Before I go on, many advisors will tell you that you need to do a bond fund for diversification. You don't have enough money to possibly by an individual bomb. Well, if you don't have enough money to buy an individual bond, that also tells me you can't afford to lose any money. If you bought a Treasury bill for instance, or a Treasury notes, they are guaranteed by the taxing authority of the United States government. So, you don't have to have money to be diversified just by that. All right now let me continue here when you are younger, when you're younger and you are invested in your employer's retirement account. All right, your dollar cost averaging, you have more than 5, 10, 15 years until you need this money and now these markets have crashed. Great. Just continue to dollar cost average into your total stock market index funds or your standard and poor's 500 index funds. If you feel like you want to keep some of your money safe or whatever it may be. All right. If they have a short-term bond fund within your retirement options. Okay. But again, I rather see you in the long run if you especially if you have 10, 15 years to be dollar cost averaging into what index funds within your retirement account. Now, you're in a retirement account and you're at a brokerage firm and your money, some of it has to be kept safe and sound. And you've been investing in exchange traded funds or bond funds and you are afraid because you're losing money. Alright. I need you to all understand again that essentially when interest rates go up, interest rates are going up, all bond funds are going to be affected however some bond funds are going to be affected more than others. So, let me give you an example if you're going to be investing in bond ETFs or funds. The difference between a short-term bond ETF an intermediate bond fund or ETF and a long-term bond fund or ETF. So, first of all, a short-term bond fund or ETF means that they buy bonds that have maturity is less than five years. An intermediate means they are buying bonds that have maturity is from 2 to 10 years and long term means that they are buying bonds that usually have maturity of 10 years or longer. In normal markets. The longer the maturity, the higher the interest rate you get. But also, the more it fluctuates. So, I just want to show you that now in real terms. All right. Your money is in the short-term Vanguard ETF symbol BSV and let's just say you bought it at its high which was $82.88. As a Friday. It closed at $80.24. So, what that means is that this bond fund that currently is paying you? 1.37% is down 3.2%. Okay, you're down even though you're being paid 1.3 per 7%. It's down in value 3.2%. Not so bad. Now let's say you bought the Vanguard intermediate ETF which symbol is BIV and you bought it. Let's say it it's high. Which was $92.47. And now as a Friday it was $86.06. Now that fun pays you right now. 1.98% interest. Nice. But now you're down 7% on that fund. Do you see how you are down almost twice what the short-term ETFs down? Let's say you bought because you wanted a higher interest rate. The Vanguard long term fund symbol BLV that currently is paying 2.91% it's high was 107.71. And now it's a Friday. It was 99.68. So, it's about 7.5% loss. So, do you see bond ETFs or funds when interest rates go up, they will go down in value. So, the shorter the bond fund or ETF, the less it will go down in value. So, if you don't have a choice then alright, go into a short-term bond fund. All right. No problem. But again, if you have the ability and the confidence to do an IRA rollover with money once you have retired from your ex-employer then you have other ways to invest that no matter what happens to you, you could buy individual treasury bills or whatever and you would never lose money. So, it's important that you understand what I mean. When I talk about bonds, bond funds, you understand the difference between those kinds of bonds and I bonds and treasury inflation protection securities bonds, all of those. And I know I told you I would do a Suze's school on the difference between those two the last two I just mentioned. But given what happened in the stock market in the fast-past few days, I had to do what I did today. Now I went really long. But here is the summary of what I want you to get right now. It's a rough time out there when it comes to stocks. However, if you're diversified and you have time on your side, you're gonna be okay as long as you are invested in good quality exchange traded funds and or stocks number two, I would not be buying right now. Maybe I would be nibbling a little bit, but if you have cash to invest, I will probably wait until about February. I would be very, very careful in what you should be buying. Make sure they are good companies. Number three, okay. There's nothing wrong with you buying good quality dividend paying stocks and by the way, I still like oil, I think oil is going to go up to about $100 so that still has room to play just so you know, so you need to just stay calm here. I do think it's too late to sell right now. It's it just is unless you are in really stocks that don't have earnings stocks that are just selling that really high multiples stocks that were SPACs then. And if you don't know what that means, okay then you're not in them butts packs or you know IPOS that just did nothing or are doing nothing now you have to be careful and maybe you want to clock a loss right now and maybe use it later on to offset whatever gains you may have if you're not in a retirement account. So, I hope I didn't confuse you more, but you just need to stay calm right now and just remember that eventually this will work itself out alright. There's only one thing that I really want for all of you and that really is for you to all be safe, strong, and secure. So, to do that, don't ever get caught up in the false wealth syndrome because I promise you that will lead you to a place eventually of insecurity.


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