Podcast Episode - Stock Market Frenzy - What Now

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In today’s podcast, Suze explains the recent downturn in the stock market and why it’s important to stay calm right now.

Podcast Transcript:

Suze Orman here and you are listening to the Women and Money Podcast. Today is March 1, 2020. What a week last week was, wasn’t it? The markets were going down, the markets were going down, and the markets were going down. And even though today’s podcast had already been recorded and it was a totally different podcast… I’m in New York because I’m launching my new book, which, by the way, hit number one on the Amazon bestseller list, thank you all so very, very much. And I couldn’t just let that podcast go because I know all of you are so afraid, and I know all of you don’t know what to do. Should I sell? Should I sell? Oh, my God. I’ve got to get out of the market, I’ve got to get out of the market, so I thought, all right, I’m going to record a new podcast today just to address what happened last week.Now, I just want to say something. Do all of you remember? Do you remember in Season Two Episode 55, Episode 57, Episode 60, Episode 97, where I told you, I said to be very, very careful that in February of the year 2020 you could expect this market to go down? And a lot of you would write to me and you would say, what do you mean, Suze, what’s going to happen in February? What’s going to happen? And it’s not like I knew something was going to happen. What was going to happen? Was it going to be the virus? I didn’t know, but I also knew that we were heading for a situation that was totally overbought and that it was very likely something was going to go wrong at the beginning of the year, right around February.And if you want to listen to that, by the way, and these episodes, Episode 55 was recorded, I believe, on July 21, and if you just go to that episode and go to around four minutes and 12 seconds, you’ll hear me say: “Then next year, probably around February of next year, something could happen with our trade wars that send our markets in total turmoil again.” Episode 57 was recorded on July 28. I repeated it, that something was going to go wrong in February, and you can find that 18 minutes and 18 seconds into that podcast: “Because the markets could be iffy here, especially starting in February of next year, we can get iffy, everybody.” Podcast number 60 was recorded on August 8, and if you go to 25 minutes and 40 seconds into that podcast, you can hear it again: “I also think it’s going to be very volatile, and things are going to happen at the beginning of 2020, somewhere around there, you know, February or so.” And for the last time of Season Two on December 15, before we went into 2020, I did it again on Episode 97, and you can listen to that, starting at 17 minutes and 42 seconds into that podcast: “If I was going to give you a prediction for next year, I think that will be relatively OK, I think in February and March we may see a downturn in this market. I think anything can happen around that time. I’ve said that before.”So all right, we’re here now and now I’m getting emails from you. Well, I didn’t listen to you, Suze. I should have listened, I should have gotten out of the market, I should have done this, I should have done that. I need you all to stop, and I need you to put this seriously into perspective. I get that the market went down 3500 points last week, and I get that the headlines everywhere, these are the headlines, all right: “The greatest point drop in the history of the stock market.” The keyword there is point drop. They did not say the greatest percentage drop, they said the greatest point drop. And the truth of the matter is, then in that one week, we lost about 12% or 13%. Now, I just want you to put this in perspective. It was October 19, 1987. It was a Monday, and I’ll never forget this Monday as long as I live. And the market dropped, it didn’t drop 3500 points, it didn’t drop 1200 points like it did the other day in one day. It dropped 508 points, that’s what it dropped, 508 points. But the difference is this. When this market, today’s market, started to drop, the Dow Jones Industrial Average was at almost 30,000. Thirty thousand. Back in 1987, when the market dropped that 508 points in one day, The Dow Jones Industrial Average was at about 2300. That drop that day was about 22.5%. Twenty-two and a half percent in one day. That, my friends, is the largest percentage drop in the history of the stock market.But do you notice the difference in what I’m saying? That was the largest percentage drop. Now everybody’s saying this is the largest point drop. A percentage drop is far worse than a point drop. So what we’re comparing here is 12% over a week drop versus back in 1987, a 22% drop in one day. And in the year 2008 when everything was going crazy, the market went down about 57%. That is not where we are right now, so I need all of you just to stay calm. I’ve been telling you the way that I want you to invest is through dollar-cost averaging. Listen to every single one of my podcasts. when I talk about investing, and I’m telling you, do not take a lump sum of money. I’ve been telling you this now, since the beginning of this podcast, about two years ago. Do not take a lump sum of money and invest it all at once. I’ve wanted you to take small amounts of money every single month, exactly like you do in your 401ks, your retirement accounts, and diversify it into a Standard and Poor’s 500 index fund, or ETF, or the Vanguard Total Stock Market Index Fund, or a variety of individual stocks. You should be investing in stocks that pay you a high dividend yield. But again, you are only to invest in a market like this one, like we have now, where we don’t know what’s going to happen on a dollar-cost averaging basis with what you consider a small amount of money to be. So that you can continue to put that amount of money in, every single month, for at least the next three years and hopefully longer. All right, what do I think is going to happen? Now, first of all, let me tell you what I think you should be doing at this point right here and right now, the truth of the matter is, if you do not need your money for, again, 10, 15, 20 years or longer, this is the best thing that has ever happened to you in a long, long time. Because now, many of the stocks that have decreased tremendously in value are such incredible buys, it’s not even funny. Suze Orman, did you go into the stock market on Friday of last week, and did you buy? Oh, you betcha I did. And I bought stocks that paid me high dividend yields, anywhere from 4%, 5%, 7%. I want those dividends and they’re all in companies that have solid dividends where they’ll probably increase their dividends. And as time goes on, and I don’t care if the market goes down and something goes from $40 to $35 to $30 and so forth because I’m still getting paid to hold that stock, and it will come back. So just note, I did not rush in with all the cash I have designated to invest last week. I just did a small percentage, but I started buying because I don’t know, is it going to go up? Is it going to go down? I don’t know. But I do know I’m happy with the dividend yield that I’m getting right now from the stocks that I did buy. And if the stocks go down even further, I’ll be even happier because the dividend yield will go up with the new stocks that I buy at that time.Now, I want to go back to 1987 again. The market went down that one day 22% and everything, it eventually came back. And in the next few years and everything you would have made a lot of money. I want you to think back to 2007, 2008, 2009, we were down 57% and then we have one of the best bull markets until last week, really, that we’ve ever seen. So markets go up and markets go down, and that’s called investing. And if you have time on your side, you should be able to take advantage of it when in fact the markets go down. Now, many of you take advantage of it when what? When in fact you’re putting money in every month into your 401k plan, and now the markets have gone down, your dollars are buying more shares. And next week, months from now, years from now, when everything returns, you’re going to make so much money it’s not even funny. The key is, however, to just keep investing small amounts of money every month into the investments that you love, don’t stop. Because here’s the truth, everybody, no one knows what’s going to happen. Is it going to go up? Is it going to go down? And the moves, when it does go up or down, can be absolutely dramatic because everything now is automated, is absolutely automated, which is why it happened so fast. So that is the cycle of investing that will lead you to success as long as you are diversified and in good quality investments, and you continue to dollar cost average. When does that cycle stop? The cycle stops when you know you are going to need this money within five years or less, and you’re going to need it for what? Let’s just say you have money that’s in a Roth 401k or a Roth IRA because, you know, I’ve been telling you, I want you all in Roth retirement accounts. And so you have your money in these accounts, and now you’ve retired, and you have a $200k mortgage left on your home. And you knew that when you retired, you wanted to take $200k out of your Roth retirement account, which you can, tax-free, and pay off the mortgage on your home. You knew you needed to do that, or you wanted to do that. That’s not money that belongs in the stock market, that’s money that you have to keep safe and sound.So, what do I think is going to happen? I don’t have a clue. I don’t have a clue and the truth is, nor does anybody else because it depends on the virus. It depends on so many things that are absolutely unknown at this point in time. But when this market does start to come back, that we will see a 50% retracement of the loss that has occurred. The real downward thing may come in November of this year, so you have got to have a long strategy. You have got to have a strategy of, are you investing right now for immediate gains or are you investing for the long term? Five years from now, 10 years from now or longer because if you are, there are so many incredible buys out there right now that will absolutely make you a lot of money if you can just wait. And then you look back on it and go oh, my God, in the same way, that just a few months ago, a few weeks ago, actually, you were like, oh I’m so glad I didn’t get out of the stock market in 2008, 2009. Look how much money I made. So money is made by staying in the stock market, not by getting out because I don’t care who it is you will never sell at the top and you will never buy-in at the exact bottom. Maybe you will once in your lifetime but it will be luck. You know I’ll never forget, just a little bit ago, Colombia, you’ve heard me talk about Colombia, he works for KT and me on the island. I’ve been investing his stock portfolio for him, and I’ve almost tripled his money in the past year or so. And I bought him a stock, I bought him Zoom, symbol ZM. And I bought it when it was relatively low, and then it went up to $100 something and I sold it. And right after that, it went down to $88. I thought I was so smart, so smart. But I wasn’t smart enough to buy back in. And all of a sudden, now it’s back in the hundreds again because everybody is using videoconferencing rather than going places because everybody’s afraid they’re going to get sick. But do you see what I’m saying to you? If you just know that you’re invested in good quality stocks, or if you’re diversified and you’re in an index fund, or you’re in good quality stocks that pay you dividend yields and those dividends go up 10% or 15% every year, which many of the companies do. And you keep dollar-cost averaging if you can, you’re going to be just fine. So I really wanted to do this podcast to just calm you down.Do not freak out, do not come out of the markets at this point anyway, as long as you know that you have time on your side and you don’t need this money for at least 10 years. For those of you who are in the market and you really need this money for whatever it is, you need this money within a year, three years, just a few years from now. You might want to think about that when the market goes up again, and I think you’re going to see it retrace at least 50% of what we just lost, you might want to liquidate at that point.I want to say something else, however, OK? I’m getting so many emails from friends of mine that are Suze, Suze, I am freaked out. I don’t understand why the markets are going down, it doesn’t make sense to me, Suze. Should I sell? What should I sell? And I know what these people have in their portfolios, and these people have fabulous stocks and they’ve had these stocks now for quite a few years, and they have made so much money on these stocks it’s not even funny. And here’s what nobody is understanding. If you have a stock that has gone up considerably and it is outside of a retirement account, you better be very, very careful about selling that stock because if you sell the stock and you haven’t held it for at least one year and one day, your gains are going to be taxed to you as ordinary income. So let’s just say you’re in the 35% income tax bracket. When you sell and you have to pay taxes on it, if it’s a short term gain, you’re going to lose 35% to taxes. Don’t you think you would be far better off just keeping the stock and then letting at least go to a long term gain, which would be one year and one day of ownership? And then if you sold it, all right, so maybe you’re going to have to pay 20% capital gains, maybe less or more, depending on your income tax bracket. But then I want you to think about that as well. If you’re going to have to pay a 20% capital gains tax, isn’t that worse than the stock only going down 12% or 20%? Did you see what I mean? You’re going to lose one way or the other. The only way you win with that is if you have your money in a retirement account, whether it’s a pretax retirement account or a Roth retirement account, you can buy and sell everything at that point in time, it doesn’t matter because there are no tax consequences. So you have to think again when you have money in an investment account outside of a retirement account about the tax ramifications before you ever sell. And then you have to compare those tax ramifications to, what would happen if you just simply held onto it? Just something to think about. Next, when you see this market do a retracement and go back up again, it might be a time that you do want to sell some of your winners, if you have losers, to offset your gains so that in fact you don’t have any taxable consequence. So if you want to use this time to clean up a portfolio, then you’ve made investments that your stocks are losing and it’s lost you money, outside of a retirement account I’m talking about now. And you have stocks that still have tremendous profits but you’ve just lost some of your profits. You might want to sell both of those and offset your gains against your losses so you don’t have a taxable event. Then, when the market starts to retreat again, which I think it will, then you can always buy back in the stocks that you really want to own. These are some strategies, really, that you might want to just think about.So the main reason, again, I wanted to do this podcast today was I really just wanted you to calm down. Just calm down, because everybody is just really making this a huge, huge deal, and I’m not saying that it’s not. A 12% retreat in one week is not a little deal, but it’s not this horrible deal, it’s not like 22% on October 19, 1987, in one day. All right, so are you all feeling better?But now, since I have you, you know it is March 1. You still have two days to go to www.SuzeOrman.com and if you purchase my new book, The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime, you will be entered into a contest. And if drawn, you will have a one on one money makeover with me, so think about it. I would be looking at your stock portfolio, I’d be looking at your retirement accounts, I would be telling you, should you refinance your house or should you not? I would be telling you every single thing, on the phone, of course, every single thing that you need to know about your money. You might want to take advantage of that. You have two days left because March 3, 2020, at the end of that day, that offer is going to go away. Right, and don’t forget to tune in to my new PBS special that is running through March 15, and you might just want to find out when is your PBS station airing it, and just watch it. Just watch it, and I think you’ll enjoy it a lot. So, I’m still in New York and I’ve had the most wonderful time while I’m here. Did you all see me on Hoda and Jenna on February 26? Did you see me give away my audiobook? Twelve hours and 30 minutes of the hardback version of this book, I gave it away to the entire United States. Now, did you listen to me? A lot of you have, I’m getting emails from you and you’re loving the audiobook, and I’m loving that it went directly, in just a few hours, to number one on Amazon. I’m sure it will retreat here and become number two shortly, but I think it probably will go right back up to one again.All right, are you feeling any better? Are you feeling relieved? I hope so. I just want to say one other thing. I don’t know exactly what happened, probably the market going down, but I now have thousands and thousands and thousands of emails that came into AskSuzePodcast@gmail.com, which is where you write in to ask me a question that I answer on the Thursdays podcasts. And there is no way now that I can answer everyone, it’s thousands that are coming in every day, and I can’t keep up now. So, I will, I’m reading them, I’m scrolling through them, I’ll answer the ones that I can. Within a few weeks, the Women and Money app will be up, and then we’re going to be able to have a whole new way to ask questions, see the answers, and communicate with one another. So I hope this has helped you a little bit. And again, I remind you to listen to Episodes 55, 57, 60, and 97 all from Season Two and don’t say I didn’t warn you! 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. 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