Podcast Episode - It's Time To Pivot

Home Mortgage, Life Insurance, Retirement, Stock Market

October 11, 2020

Listen to Podcast Episode:

On this podcast, Suze takes us back to “Suze School” for a lesson about why it’s time to pivot. We need to make sure that we’re making the right investments.

Podcast Transcript:

Suze Orman’s Women and Money podcast is proudly sponsored by credit unions; a safe home for your money, rain or shine. October 11, 2020, Suze O. here and welcome to the Women and Money podcast, as well as the men smart enough to listen. Before I start into the topic of today's podcast, which I'm still not sure of as I'm saying this, I just want to tell many of you I know that you have been writing me and number one I just want to tell you, thank you. I'm still recovering and I'm doing as well as possible but I've been told that it will still be quite a few months before I'm really back. So, I just have to be patient and I have to pivot my life to be able to fit the circumstances that I happen to be in. Now, the keyword there was "pivot," and it's almost as if all of us, whether you're me dealing with the things that I've been dealing with like my health, or if it's you who are dealing with possible unemployment, possibly not knowing how to invest, possibly being in a relationship that you still don't want to be in but you don't know what to do, possibly losing your job or having lost your job and it's not going to come back and you don't know what to do. Now is the time that you can't do the things that you've done before in the past, you have to pivot to look at your life in a whole brand new way. And a way that will work for you against all odds because what's really obvious to me is that what was, was, but it will never be again. And unless we have a new attitude and a new way to look at all the obstacles that are facing us, I'm afraid that those obstacles will keep us from being more and having more. Those obstacles will truthfully get in our way of doing that which we need to do to get through these rough times. And these rough times are not over. I will say it again, the stock market is not the economy, and the economy is not the stock market. And what's really important to understand is that we still have about 25 million people that are on unemployment. We have now come to the point where both sides of Congress are absolutely arguing over, does this stimulus get passed, does it not? What should we do? We have that craziness there and I'm here to tell you that stimulus needs to be passed, not just for you to get a $1200 check, not for you to just get $600 more a week in unemployment. The states are going bankrupt. Police, fireman, everything, and so money is needed throughout the entire system to keep everything running. And if those things don't continue to run, it will affect all of us. So I'm so happy that all the politicians think that they have time to be able to not pass this when it has got to be passed now or we are heading for serious trouble. It is no joke when you hear airlines like American, United, whatever laying off 25k people, 30k people. Disney, thousands of people, all these major corporations, are starting to layoff more people and that is very dangerous. So we have reached almost the end of the financial line, so to speak and we also have to deal with COVID. And I know that we all want COVID to be better. And it's true, as we said, or at least I said months ago that in September we'll feel better a little bit about it because maybe vaccines and things will be coming along and they are. But also, we have more cases being reported now than there were back in June. So, it is not under control, it is ramping up, and as long as we have COVID ramping up, we're going to have problems in the economy and with your jobs. So this is the time to pivot and look at everything a new way. And I know you're probably sitting there thinking, Suze, what is it that I can do? I have tried everything, there are no jobs out there. As long as you continue to think that way, then there will be no jobs out there for you. You know, I got this incredible text this morning from my friend Holly O' Brien, who was my makeup person back at HSN when I would go to HSN and be on the air there and then everything shut down. And so this morning I wrote her and I said, you know, Holly, I've been thinking about you. How are you? Here you are, you're a makeup person, all of your clients would go on HSN, they can't go on HSN anymore because everybody's broadcasting from home. Your husband runs a gym, so I'm sure nobody is coming into that gym. You have two kids. How are you doing? How are you making money? What's up? And she wrote me back this really sweet text and she said, you know, Suze, it's been interesting, but I've really been going with it. The first thing that happened was my entire family caught COVID, myself, and my two kids we only had headaches, but my husband really got it bad but he's OK now. And, yes, I lost most of my clients and we had to close down the gym. But here's what we've done. Somehow I didn't want to give up. Somehow, I wanted to believe that God had a master plan for me. So now I'm working for a company that sells athletic equipment and I'm doing voiceovers for them and all kinds of things. And we've now gone to online with the gym and doing counseling classes and things like that, and we're making it. And chances are, Suze, we're never going to go back. Sure, we've kept the gym open, but we're doing really fine just as it is, we found a way. So, it's important that there has to be away. And the reason that you have to pivot is it's possible the way isn't about going back and doing that what you've always done in your life. It may be you doing something else that you never even thought of, but you have to be open to the possibilities because the world is changing and I've said this before, I really don't think it's going to go back to how it was. But while you're doing that, I know a lot of you as well are investing money and the emails that I'm getting from all of you are really I have to tell you a little bit scary because you are in such a rush. You're in such a rush to make money and to do things I'm afraid you're making some of the biggest mistakes of your life because you are having tremendous anxiety of the unknown, and this anxiety of the unknown is causing you to do things that you think you know but you probably don't. So, I want to do a little bit of a Suze School here today where we think about things before we do them because the other pivot that you have to make is every penny has to count, and you have to count every penny now. You cannot afford to make an investment and have that investment not pay off for you. You cannot afford to put all your money to work for you somewhere and not know that that money is going to pay off for you because they're just may not be enough time to make up for it. So everything that you have right now, I need you to think twice before you take action. And because you have this anxiety of the unknown and you feel like you have to make up for lost time, you're trying to do things in too much of a rush without really thinking about it. So again, I just want to give you a little bit of a Suze School on where many of you are being vulnerable right now, and I do not want you to do certain investments. OK? So, the very first investment I want to talk to you about really is one that I've talked to you about before, which is indexed universal life insurance policies. I am begging you not to do them, not to do them, not to do them. And so many of you right now are getting approached by financial advisors, by life insurance salesman, by other people telling you this is exactly what you do need. This is how you can make more out of your money, these are incredible retirement accounts, this is what you should do because the stock market may be too volatile. You can't get a good interest rate, just do this and you'll make a lot of money. Now, I'm not going to go into how index universal life works. I just want you to know you need to stay away from it. And I feel so bad for this one woman who just wrote to me and she said, Suze, I need help, for the past five years, I have been investing $200 a month into an index universal life insurance policy, and I want to know if you think it's a good investment and if I should continue to do it or not? So she then sends me the statement from this policy, and it shows that even though she has put in $12k over the past five years, that her accumulated value, the amount of money that she's accumulated in this, is only $4500. Yes, it's given her a $250k life insurance policy, but she paid a whole lot of money for a life insurance policy that she really doesn't need, number one. And number two, if she had just purchased term life insurance, term insurance, which is good for a specific period of time, it wouldn't have cost her anywhere near $12k. Now, why do I say $12k when her accumulated value is $4500? Because she really doesn't have $4500 in this policy because this policy had, a 15-year surrender clause on it, which says that if you take your money out before 15 years, you're going to be charged a penalty. If she wanted to take out her $4500 today, she would get zero money back. So now they have her. They have her wanting to give them $200 a month for the next 10 years. Ten years now so that's $24k more for her to be able to get anything out of this. Do you understand what a huge mistake that is? And really it's like, what do I tell her? Do I say to her, give up the fact that you wasted $12k on this policy and just stop throwing good money after bad? Or, do you continue putting another $25k in it in the hopes that it's going to be OK? I don't want you to get yourself or find yourself in that kind of a situation, so you have to pivot and what you do with money and you have to pivot entrusting those that you really don't know, because it's really better for you to do nothing than something you don't understand. And again, you have so much anxiety about the unknown of your future, you're willing to believe anybody and everything and just go ahead and do it. And now, we have problems and it's not just this woman who has problems. How many emails have I gotten that you have now said to me, Suze, I thought this was such a great investment, and all of a sudden, now my premium is being raised in for me to keep this in place, I have to come up with another $10k year. And all these emails, what breaks my heart is that there isn't anything I can do to recoup your money for you or to help you other than to just say, you've got to suck it up here and in most cases, not all, but in most cases, you just have to surrender the policy and let's start over, investing your money in a way that will pay off. You've got to be careful. So, the main thing that I want you to know today is please stay away from index universal life. Stay away from whole life, universal life, variable life. Can you just stay away from the majority of insurance products that are out there? Insurance is fine if you need insurance for life insurance. But then, the only type of life insurance that really makes sense to me is term insurance. So again, Suze School would tell you term insurance is good for a specific period of time. You usually carry it until your children are between the ages of about 25 and 27 then you no longer hopefully need insurance. Because you are not expected to die with it, your premiums are so cheap, it's not even funny. You could get like a million-dollar, 20-year level term policy, depending on age and health, for maybe $25, $50 a month. If you got any other type of insurance, look at this woman I just talked to you about, $200 a month for $250k of a death benefit, and she's young. Really, everybody? Again, 20-year level term means that for 20 years your premium is level. It stays the same. My favorite company for you to get a quote for term insurance is www.SelectQuote.com. I do not get paid to say that they don't even know that I'm saying that, I just love that company because they actually created the quoting services over 30 years ago. Also, when you get a quote, the five cheapest term insurance policies will come up and you just choose the one that's cheapest, that's all. It's as easy as that and then you apply online. A few things you need to know before you cancel a life insurance policy is, make sure that your new life insurance policy if you're doing this for life insurance, is already in place. After it's in place then you can cancel a policy that you may already have because you never know what can be wrong with you or what's going on with you, truthfully. I am a perfect example of that, you know that everybody. So, it's important that you really know your health before you make a change. So what I really want you to get out of this is before you ever buy any investment, you need to look at the surrender charges. How long do you have to keep your money in this investment before you can take it out? And if there is a surrender charge, you need to wonder why is there a surrender charge? And the reason there is a surrender charge is that is the commission that is being paid to the person that's selling it to you, and the company wants to know that they will get their commission back if you happen to cash out of the policy. So, a surrender charge is something you should always look at when buying any type of investment. Got that, everybody? That could be a mutual fund, it could be an insurance policy, it could be an annuity, it could be many things, but you need to look at that surrender charge. The longer the period of the surrender charge the higher of a commission that the financial person has made. So, this was a 15-year surrender charge on the policy that this woman had purchased. That is highway robbery, I can't even imagine what the salesperson made in selling her this product. So the surrender charge is key. The next thing that is key and you just have to take notes on this is that if ever you are going to buy a policy of any kind, not a term policy, but let's say you bought or you really don't believe me and you just want to check out index universal life or variable life insurance policy or whatever it may be. You will get an illustration, and what you have to look at on the illustration is the accumulated value and the cash value. The cash value is absolutely what you are guaranteed to have. The accumulated value, like this policy, she had accumulated $4500, but her cash value was zero. So the company accumulated $4500 really, she didn't accumulate anything. So you have to look at cash value. Are you all taking notes? Are you all taking notes? You need to take notes here because you are pivoting here now from trusting those who want you to do something with your money and they're going to make money off of you, to you be knowledgeable so that nobody else can ever take advantage of you again. Because there's no time in this type of economy for you to be taken advantage of, and then five years down the road, me having to say to you, ah, you think you're just going to have to write off $12k? You can't do that. So, therefore, you better be taking notes. The next thing is when you look at your illustrations, there is a projected value and a guaranteed value. Projected means they can put any interest rate they want in there and it's projected that this is what you'll probably have in five years or 10 years, and that's what they show you. The guaranteed side is this is what you are guaranteed to have. You never buy an investment based on the projected side, you only buy an investment based on the guaranteed side. Am I clear with all this? I hope so. The next thing I want to talk to you about is real estate. So, I'm getting too many emails about all of you being so anxious about the unknown. You're looking at all of these people around you who have been purchasing real estate over years now, and they're older, and they're getting income from it and you want to be just like them. Stop wanting to be like other people. Just want to be who you are and make your life very simple and very secure. So what's concerning me is that you're writing me and you're saying because interest rates are so low right now, you want to take advantage of it and you want to become a landlord. You have this dream of owning your own home and two other rentals before you are 70 and that will allow you to catch up and make up for lost time on your retirement. Because the truth of the matter is, a lot of you now are looking at your lives, you're in your 50s, you've lost your job, you've used up your emergency funds, you don't know what to do. You've gone into your retirement accounts, you've done all of these things and now you're trying to do anything and everything you can to make up for lost time. That concerns me. That again is the anxiety of the unknown because you don't know how your future is going to turn out and you have all this anxiety. You want to create more anxiety for yourself under the guise that it's going to work for you because it has worked for other people. Have we not learned anything over this past year? Being a landlord isn't always as good as it looks. I get that you think you're going to be able to collect income, but that's only if your tenant is able to pay you that income. Do you not remember that this is the year that a lot of people who rented, they didn't have to pay their rent and you weren't able to evict them? But yet you, in most cases, still had to pay your mortgage. And even if you didn't have to pay your mortgage on that property for the entire time that they weren't paying you rent, you're certainly having to pay for it now, the forbearance periods are over. So, it's important that you make rational moves for yourself and not irrational moves. So, the reason that I'm talking to you about this is that last night I really got an email that upset me, and this is her scenario, and maybe it's your scenario. She's 53 years of age, and she's concerned, she really wants to make up for lost time. And she currently owns a home that she bought for about $265k, now it's worth about $330k or $350k but her costs are only $1k a month. She has only $170k left on the mortgage at 3.5% and her plan is to save $30k, when she then saves $30k she's going to buy another home for about $300k and put 10% down. That will mean she has a mortgage of $270k versus $170k now, and she will rent out her current home because she thinks it's going to continue to appreciate in value for approximately $2k a month. She'll live in this home, the new one that she's going to buy, and again do it again until she owns three homes, one her principal property and two others. The problem is, she's 53 years of age, these are 30-year mortgages, which means unless she pays more on the mortgage, she's going to be paying them until she's at least 83 years of age. She's not taking into consideration that the income that she gets on these properties is absolutely taxable, so it's not like you're going to net $1k a month from the properties, and properties are expensive to keep, things go wrong with them. Tenants do not pay, tenants destroy properties, all kinds of things can happen when you invest in real estate. So, owning your own home is very different than investing in real estate. So if you are going to invest in real estate, you have to have a working capital fund. If something goes wrong, you have got to treat it like a business so that if your tenants can't pay you then great, you can pay for it because you have that emergency working capital to keep everything going. Oh, you need a new HVAC system, oh, you need your windows replaced, oh, mold has gotten into your property. Whatever it may be, you have to run this like a business and you just can't go, oh, I'm just going to do this and keep getting myself in debt and accumulate these properties and that's how I'm going to make money. The pivot here that I want all of you to make is there's nothing wrong with you having one house. You're 53 years of age. It's a beautiful house in a neighborhood that is continuing to increase. It's $1k a month for you to live there, you could easily pay that off with money that you're saving in the next 10 years. You could own that house outright by the time you're 63 or 65 years of age. If you got sick during that time or you get older and you get sick, you have a house that's totally paid off and you don't have to worry about who's going to take care of the other properties? Where's all the money going to come from if this happens again like just happened this year and tenants aren't paying? Life can be very simple and you accumulate a lot of money. And I know that many of you, including this woman, is very afraid to invest in the stock market because she lost all her money in 2008. However, if she had just left her money in the stock market, she would have averaged 14% over the past 10 years on that money. So, we're making irrational decisions on what to do because it's working for other people, this is my plan. I need you to really think thoroughly through everything that you are doing. There is nothing wrong with living a simple life. There is nothing wrong with accumulating hundreds of thousands of dollars in cash, and I understand that maybe it's not making any money, but it will make money again. Interest rates will change again and there's nothing wrong with you thinking about investing in the stock market in good quality stocks, possibly dividend-paying stocks that you could get 5% or 6% on your money. You know, I did the math for her, and given the money that she has in her house that she's living in now, after all expenses and everything, she's going to make a return of about 3% a year on her money, assuming that the property doesn't increase anymore in value. And there's no way to know if property is going to increase in value or not. But it's also very difficult when you have real estate, will it sell, will it not sell? When you sell it, you have to pay a commission to sell it. If it's a rental property, you're going to have to pay a gain on that. So she bought it for $265k, and all of a sudden it's worth $465k, she's going to have to pay a capital gains tax on $200k and who knows what that will be? So there are all different ways to invest but the main point of this is the main pivot here is it's not all one way or the other, so I don't want you to think real estate is the only way to make money. I also don't want you to think that the stock market is the only way to make money. The best way to make money truthfully is to work for it, believe it or not, to save it, to invest it, to make the money that you've worked for and invested work for you. But you have to do that in a truly diversified way and putting all of your money into real estate is something I do not want you to do. Once again, I understand that this podcast was all over the place, but in reality, it wasn't. This is the time that you have to dig deep. You have to watch every penny. Just because you have a job, I don't want you to think that you could go on and spend money and do all these things. I want you to save as much money as you possibly can because we do not know what the future is going to bring us. But I want you to stay positive and I want you to stay strong. And the way that you stay positive and stay strong is you learn about your money. You think about all the possibilities that are out there for you to maybe make money right now. They are out there, you just have to find them. All right. Now, here's the real question. What am I going to name this week's podcast? I'll have to think about that for a little. See you on Thursday. Hi, I'm Sarah, and I'm Robert, and we're from Suze Orman's Women and Money podcast team here to tell you that Alloya's member credit unions are so proud to have brought you this episode. You know, Robert, credit unions live by a people helping people philosophy. Absolutely, Sarah. And that means when you bank with a credit union, you can trust that they have your best interest at heart. The fact is, regardless of circumstance, a credit union will have your back and keep your money safe, that's the credit union promise. Go to www.MyCreditUnion.gov to find a credit union that fits your needs. That's MyCreditUnion.gov. In providing answers neither Suze Orman Media nor Suze Orman is acting as a Certified Financial Planner, advisor, a Certified Financial Analyst, an economist, CPA, accountant, or lawyer. Neither Suze Orman Media nor Suze Orman makes any recommendations as to any specific securities or investments. All content is for informational and general purposes only and does not constitute financial, accounting or legal advice. You should consult your own tax, legal and financial advisors regarding your particular situation. Neither Suze Orman Media nor Suze Orman accepts any responsibility for any loss, which may arise from accessing or reliance on the information in this podcast and to the fullest extent permitted by law, we exclude all liability for loss or damages, direct or indirect, arising from use of the information.

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