1 00:00:00,150 --> 00:00:03,109 Robert: Ok, Suze. Are you ready for today's podcast? 2 00:00:03,119 --> 00:00:06,399 Suze: Oh, you bet I am because I'm unstoppable. 3 00:00:08,100 --> 00:00:08,139 Music: Music (in). 4 00:00:29,139 --> 00:00:34,259 Suze: August 6th, 2023. Welcome everybody to the Women and Money 5 00:00:34,270 --> 00:00:40,360 Suze: podcast and everybody smart enough to listen, Suze O, here. 6 00:00:40,369 --> 00:00:41,139 Suze: Now 7 00:00:41,779 --> 00:00:46,590 Suze: today's Suze school is going to be about bonds, 30 8 00:00:46,598 --> 00:00:51,089 Suze: year treasury bonds to be exact. So get out your 9 00:00:51,098 --> 00:00:55,069 Suze: Suze notebooks because I really want you to take notes 10 00:00:55,080 --> 00:00:58,900 Suze: and listen closely to this Suze School because this is 11 00:00:58,909 --> 00:01:03,409 Suze: an important concept that you need to understand. 12 00:01:04,138 --> 00:01:09,668 Suze: Now, let's start very simply with what is a bond? 13 00:01:10,179 --> 00:01:14,068 Suze: A bond is a debt instrument 14 00:01:15,260 --> 00:01:20,819 Suze: that simply means you are lending an entity, your money 15 00:01:20,860 --> 00:01:23,860 Suze: for a specific period of time 16 00:01:24,529 --> 00:01:28,059 Suze: and they pay you an interest rate on that money 17 00:01:28,069 --> 00:01:30,500 Suze: for the entire time 18 00:01:31,349 --> 00:01:35,419 Suze: until they pay you back. Hopefully the amount that you 19 00:01:35,430 --> 00:01:36,160 Suze: lent them 20 00:01:36,900 --> 00:01:41,110 Suze: on a specific date in the future, which is known 21 00:01:41,120 --> 00:01:43,389 Suze: as the maturity date 22 00:01:44,300 --> 00:01:48,349 Suze: for this Suze School. As I said, when I first started, 23 00:01:48,360 --> 00:01:53,069 Suze: we are simply focusing on treasuries that are issued by 24 00:01:53,080 --> 00:01:59,069 Suze: the United States government which in theory means you are 25 00:01:59,080 --> 00:02:03,989 Suze: lending the United States government money, they need money to 26 00:02:04,000 --> 00:02:08,490 Suze: pay their bills and that money is backed 27 00:02:09,139 --> 00:02:12,729 Suze: by the full faith and credit of the United States 28 00:02:12,740 --> 00:02:20,350 Suze: government making them supposedly the safest debt instrument that you 29 00:02:20,360 --> 00:02:25,289 Suze: can buy. Why did I say? Supposedly because we have 30 00:02:25,300 --> 00:02:28,210 Suze: to admit, don't we, they didn't feel so safe just 31 00:02:28,220 --> 00:02:31,750 Suze: a bit ago when the debt ceiling was in question 32 00:02:32,350 --> 00:02:36,549 Suze: and that's gonna come up again in just October. So 33 00:02:36,559 --> 00:02:39,478 Suze: we will see what happens at that time. 34 00:02:40,080 --> 00:02:42,580 Suze: But still they are 35 00:02:43,369 --> 00:02:50,860 Suze: supposedly the safest debt instrument that you can buy. Now, 36 00:02:51,139 --> 00:02:57,579 Suze: there are three rating services that rate the safety of 37 00:02:57,589 --> 00:02:59,139 Suze: all bonds 38 00:03:00,070 --> 00:03:06,089 Suze: and these three rating services are known as standard and 39 00:03:06,100 --> 00:03:12,139 Suze: Poor's Moody's and Fitch. Now, if you go to my 40 00:03:12,149 --> 00:03:15,759 Suze: Women and Money app and if you haven't downloaded it yet, 41 00:03:15,779 --> 00:03:18,259 Suze: you might want to do so by going to Apple 42 00:03:18,270 --> 00:03:21,740 Suze: Apps or Google Play, search for Women and Money. 43 00:03:22,169 --> 00:03:25,160 Suze: But if you go to the Women and Money App, 44 00:03:25,169 --> 00:03:29,899 Suze: you go to my wall on Friday. I posted information 45 00:03:29,910 --> 00:03:34,698 Suze: about these three rating services and everything you need to 46 00:03:34,710 --> 00:03:40,660 Suze: know about their ratings, how they rate everything. So just 47 00:03:40,669 --> 00:03:44,139 Suze: check it out. But what you need to know. However, 48 00:03:44,149 --> 00:03:45,619 Suze: for this Suze School 49 00:03:45,979 --> 00:03:50,619 Suze: is the highest rating that you can get from all 50 00:03:50,630 --> 00:03:56,229 Suze: three of these rating services is a AAA the next 51 00:03:56,240 --> 00:04:02,139 Suze: highest rating is like a AA plus. Still an incredibly 52 00:04:02,149 --> 00:04:06,929 Suze: high rating. If that happened to be the rating that 53 00:04:06,979 --> 00:04:10,929 Suze: your entity that you were lending money to happened to get. 54 00:04:11,690 --> 00:04:19,660 Suze: Now, treasuries are issued in three forms, a treasury bill, 55 00:04:20,149 --> 00:04:23,380 Suze: a treasury note and a treasury bond. 56 00:04:23,940 --> 00:04:28,109 Suze: The difference between those three are simply in the length 57 00:04:28,119 --> 00:04:32,769 Suze: of the maturity dates. A bill is usually from a 58 00:04:32,779 --> 00:04:37,738 Suze: few days up to 52 weeks. A note could be 59 00:04:37,750 --> 00:04:41,390 Suze: two years, five years, seven years, 10 years, but that's 60 00:04:41,399 --> 00:04:48,829 Suze: known as a Treasury note. A bond is 20 or 61 00:04:48,839 --> 00:04:50,850 Suze: 30 years 62 00:04:51,880 --> 00:04:56,988 Suze: and those terms are simply how long you want to 63 00:04:57,000 --> 00:05:03,219 Suze: lock in a specific interest rate for again, for this 64 00:05:03,230 --> 00:05:09,850 Suze: Suze School. I'm focusing on bonds, especially the 30 year bond. 65 00:05:09,899 --> 00:05:13,769 Suze: Although notes work essentially the same way, 66 00:05:14,690 --> 00:05:18,678 Suze: the things I want you to know about bonds when 67 00:05:18,690 --> 00:05:23,899 Suze: you buy a bond, whatever interest rate is issued 68 00:05:24,579 --> 00:05:29,220 Suze: with that bond. When it comes out, it will never 69 00:05:29,230 --> 00:05:34,670 Suze: ever change. It is fixed for the life of the bond. 70 00:05:35,450 --> 00:05:39,059 Suze: So if you bought a 30 year bond when it 71 00:05:39,070 --> 00:05:43,488 Suze: was issued and you kept it for all 30 years, 72 00:05:43,609 --> 00:05:48,359 Suze: it would pay you that interest rate that never changes 73 00:05:48,369 --> 00:05:50,980 Suze: for the entire 30 years. 74 00:05:51,799 --> 00:05:52,678 Suze: Next, 75 00:05:53,309 --> 00:05:57,470 Suze: you need to know that when bonds are issued, they 76 00:05:57,480 --> 00:06:00,390 Suze: are issued at par. 77 00:06:01,029 --> 00:06:04,500 Suze: And when you hear that word power, you just need 78 00:06:04,510 --> 00:06:11,618 Suze: to know that power means $1000. So when bonds are issued, 79 00:06:11,630 --> 00:06:15,719 Suze: they're issued at $1000 a bond 80 00:06:16,660 --> 00:06:22,589 Suze: and when the bond matures, it matures at par or 81 00:06:22,619 --> 00:06:25,910 Suze: $1000 a bond. 82 00:06:26,880 --> 00:06:31,928 Suze: Now, between when it is issued and it matures, it 83 00:06:31,940 --> 00:06:36,790 Suze: goes up and down in value. Depending on what is 84 00:06:36,799 --> 00:06:41,059 Suze: happening with interest rates. Why does it go up and 85 00:06:41,070 --> 00:06:45,630 Suze: down in value? Because not everybody is going to want 86 00:06:45,640 --> 00:06:50,149 Suze: to hold on to their bond for 30 years. 87 00:06:51,170 --> 00:06:56,040 Suze: So depending on what's happening with interest rate, the value 88 00:06:56,049 --> 00:06:58,559 Suze: of your bond will go up and down. Now for 89 00:06:58,570 --> 00:07:02,100 Suze: most of you that never affects you because you usually 90 00:07:02,109 --> 00:07:06,670 Suze: hold on to your bond for the entire length of 91 00:07:06,678 --> 00:07:07,660 Suze: the maturity. 92 00:07:08,630 --> 00:07:12,290 Suze: But there are many people when they buy a bond, 93 00:07:12,660 --> 00:07:15,440 Suze: they sell it before it matures 94 00:07:16,049 --> 00:07:20,970 Suze: or sometimes people buy a bond after it has been 95 00:07:20,980 --> 00:07:25,559 Suze: issued and they will pay a different price depending on 96 00:07:25,570 --> 00:07:31,880 Suze: interest rates. And after a bond is issued, it then 97 00:07:31,890 --> 00:07:37,959 Suze: trades in the secondary market where you can buy or 98 00:07:37,970 --> 00:07:39,500 Suze: sell a bond. 99 00:07:40,359 --> 00:07:45,209 Suze: But what you have to know is that when interest 100 00:07:45,220 --> 00:07:47,609 Suze: rates go up in the economy, 101 00:07:48,380 --> 00:07:53,429 Suze: the prices of bonds will go down and when interest 102 00:07:53,440 --> 00:07:57,730 Suze: rates go down, the prices of bonds go up, 103 00:07:58,450 --> 00:08:02,559 Suze: the longer the maturity of a bond, the more the 104 00:08:02,570 --> 00:08:06,619 Suze: price of the bond will fluctuate going up or down 105 00:08:06,630 --> 00:08:10,720 Suze: when interest rates move. Now, many of you experience this 106 00:08:10,730 --> 00:08:15,119 Suze: with your bond portfolios. Do you remember about a year 107 00:08:15,130 --> 00:08:18,200 Suze: or so ago when we knew interest rates? Were going 108 00:08:18,209 --> 00:08:20,959 Suze: to start to go up. And I kept saying to 109 00:08:20,970 --> 00:08:25,920 Suze: all of you be careful about your long term bond 110 00:08:25,929 --> 00:08:27,540 Suze: portfolios 111 00:08:28,119 --> 00:08:31,410 Suze: because if interest rates start to go up, they are 112 00:08:31,420 --> 00:08:34,630 Suze: going to go down dramatically in value. 113 00:08:35,469 --> 00:08:40,319 Suze: And mainly that affected you, not when you had individual bonds, 114 00:08:40,330 --> 00:08:44,119 Suze: but when you had bond funds or ETFs and many 115 00:08:44,130 --> 00:08:47,520 Suze: of you watched your bond ETFs o r funds go 116 00:08:47,530 --> 00:08:48,780 Suze: down 30%. 117 00:08:49,820 --> 00:08:55,390 Suze: So again, the longer the maturity of a bond, the 118 00:08:55,400 --> 00:08:59,669 Suze: more the price of the bond will fluctuate or go 119 00:08:59,679 --> 00:09:04,530 Suze: up and down with interest rates. So a 30 year 120 00:09:04,539 --> 00:09:09,770 Suze: bond will go up and down more in price between 121 00:09:09,780 --> 00:09:14,210 Suze: the time it is issued and maturity date when interest 122 00:09:14,219 --> 00:09:15,289 Suze: rates move. 123 00:09:15,700 --> 00:09:18,369 Suze: So a 30 year bond will go up and down 124 00:09:18,380 --> 00:09:22,200 Suze: more than a 20 year bond. A 20 year bond 125 00:09:22,210 --> 00:09:25,530 Suze: will go up and down more than a treasury note. 126 00:09:25,770 --> 00:09:28,569 Suze: A treasury note will go up and down more than 127 00:09:28,580 --> 00:09:30,229 Suze: a treasury bill. 128 00:09:31,109 --> 00:09:37,199 Suze: So just know that. So again, when you buy a bond, 129 00:09:37,210 --> 00:09:43,039 Suze: when it first comes out, you will pay $1000 per bond. 130 00:09:43,390 --> 00:09:48,069 Suze: So if you want to invest $10,000 for instance, you 131 00:09:48,080 --> 00:09:52,809 Suze: will buy 10 bonds. If you want to invest $50,000 132 00:09:52,820 --> 00:09:58,150 Suze: you can buy 50 bonds. But remember all bonds are 133 00:09:58,159 --> 00:10:04,739 Suze: issued at par, which is $1000 and all bonds mature 134 00:10:04,760 --> 00:10:09,200 Suze: at par, which is $1000. So again, 135 00:10:10,270 --> 00:10:14,760 Suze: after 30 years when that bond matures, you will get 136 00:10:14,770 --> 00:10:21,919 Suze: back $1000 per bond that you paid. Hopefully. Now that 137 00:10:21,929 --> 00:10:26,590 Suze: is essentially how bonds work. So let's go to the 138 00:10:26,599 --> 00:10:28,358 Suze: meat of this lesson. 139 00:10:29,119 --> 00:10:33,169 Suze: Last week, you heard me say that I was starting 140 00:10:33,179 --> 00:10:37,739 Suze: to buy 30 year treasury bonds and I was buying 141 00:10:37,750 --> 00:10:41,210 Suze: them little by little that I would be dollar cost 142 00:10:41,219 --> 00:10:46,340 Suze: averaging into them, especially if interest rates started to go up, 143 00:10:46,349 --> 00:10:51,200 Suze: which in fact, they did. Now many of you could 144 00:10:51,210 --> 00:10:53,090 Suze: not understand 145 00:10:54,229 --> 00:10:59,770 Suze: why at my old age of 72 thank you very much. 146 00:10:59,780 --> 00:11:05,330 Suze: Everybody that I would be buying 30 year bonds. 147 00:11:06,239 --> 00:11:09,299 Suze: And right after I said what I was starting to 148 00:11:09,309 --> 00:11:15,159 Suze: do Fitch one of the rating services lowered their ratings 149 00:11:15,169 --> 00:11:20,590 Suze: on us government bonds from A AAA which was their 150 00:11:20,599 --> 00:11:26,719 Suze: highest rating to A AA plus their next highest ratings. 151 00:11:27,090 --> 00:11:31,090 Suze: Then you sent me emails saying, oh my God, Suze, 152 00:11:31,099 --> 00:11:33,880 Suze: are you sure this is what you want us to do? 153 00:11:33,969 --> 00:11:36,400 Suze: They just lowered the rating on the US, I think 154 00:11:36,409 --> 00:11:40,260 Suze: we should be selling, not buying. Ok. Now, 155 00:11:40,940 --> 00:11:46,989 Suze: did you know that in 2011, August 5th to be 156 00:11:47,000 --> 00:11:51,179 Suze: exact that standard and poor's one of those three rating 157 00:11:51,190 --> 00:11:56,840 Suze: services lowered the ratings on the United States debt from AAA, 158 00:11:56,849 --> 00:12:01,919 Suze: which was their highest rating to a AA plus. Now, 159 00:12:01,929 --> 00:12:05,640 Suze: why did they do that? Because they were worried at 160 00:12:05,650 --> 00:12:06,549 Suze: the time 161 00:12:07,219 --> 00:12:10,710 Suze: that the government wasn't going to have the ability to 162 00:12:10,719 --> 00:12:16,150 Suze: pay their debt for its long term obligations. To this day. 163 00:12:16,479 --> 00:12:21,250 Suze: 12 years later, the rating from standard and Poor's was 164 00:12:21,260 --> 00:12:26,390 Suze: never raised back to its highest level, but that hasn't 165 00:12:26,400 --> 00:12:29,090 Suze: stopped anyone from buying treasuries. 166 00:12:29,469 --> 00:12:35,700 Suze: Moody's rating service still has a AAA their highest on 167 00:12:35,710 --> 00:12:41,950 Suze: the United States. But the other day when Fitch lowered 168 00:12:41,960 --> 00:12:46,650 Suze: to a AA plus for essentially the same reason that 169 00:12:46,659 --> 00:12:51,500 Suze: Standard and Poor's did back in 2011, everyone started to 170 00:12:51,510 --> 00:12:55,140 Suze: freak and sell their treasury bonds. 171 00:12:55,679 --> 00:13:00,199 Suze: What made absolutely no sense is why Fitch did this 172 00:13:00,210 --> 00:13:03,450 Suze: at this point in time. It's beyond me. Why didn't 173 00:13:03,460 --> 00:13:07,359 Suze: they do it in 2007 or 2008? You know, when 174 00:13:07,369 --> 00:13:11,650 Suze: we were really in trouble, but it is what it is. 175 00:13:11,679 --> 00:13:17,820 Suze: But when people started to sell their bonds that caused 176 00:13:17,830 --> 00:13:19,830 Suze: interest rates to rise 177 00:13:20,710 --> 00:13:26,239 Suze: and remember when interest rates rise, the price of bonds 178 00:13:26,250 --> 00:13:27,510 Suze: go down. 179 00:13:28,340 --> 00:13:33,369 Suze: Now, what I found so interesting is while most were 180 00:13:33,380 --> 00:13:40,299 Suze: selling probably the greatest investor of all, he was buying, 181 00:13:40,340 --> 00:13:46,479 Suze: Warren Buffett bought 10 billion, that's a B - billion dollars 182 00:13:46,489 --> 00:13:47,968 Suze: worth of bonds. 183 00:13:48,549 --> 00:13:53,210 Suze: And then he bought another $10 billion of bonds and 184 00:13:53,219 --> 00:13:59,679 Suze: was looking to buy another $10 billion of treasury bonds. 185 00:14:00,630 --> 00:14:06,460 Suze: Think about that, right? The greatest investor of all time 186 00:14:06,469 --> 00:14:09,679 Suze: in my opinion is buying 187 00:14:10,700 --> 00:14:13,580 Suze: and it's true. He was buying short term ones, but 188 00:14:13,590 --> 00:14:21,440 Suze: he was still buying when everybody else was selling ok. Now, 189 00:14:21,450 --> 00:14:24,830 Suze: there are three ways to buy a treasury 190 00:14:25,710 --> 00:14:28,099 Suze: again. I'm just gonna repeat this. I mentioned it a 191 00:14:28,109 --> 00:14:31,349 Suze: little bit ago, but please just stick with me here 192 00:14:31,890 --> 00:14:35,780 Suze: when a bond is first issued by the government, they 193 00:14:35,789 --> 00:14:40,739 Suze: have what is called treasury auctions that come out on 194 00:14:40,750 --> 00:14:46,099 Suze: specific dates if you missed that auction date or you 195 00:14:46,109 --> 00:14:49,440 Suze: wanna buy a bond after it has been issued 196 00:14:49,840 --> 00:14:53,489 Suze: or maybe you want to sell a bond you own 197 00:14:53,500 --> 00:14:58,200 Suze: before it matures all of that as I said before 198 00:14:58,210 --> 00:15:03,469 Suze: is usually done on what is called the secondary market. 199 00:15:04,309 --> 00:15:09,080 Suze: Now on July 17th of this year, when the treasury 200 00:15:09,090 --> 00:15:14,700 Suze: had its last auction of the 30 year bonds, it 201 00:15:14,710 --> 00:15:22,880 Suze: went for an interest rate of 3.6 to 5%. Are 202 00:15:22,890 --> 00:15:24,119 Suze: you writing all this down? 203 00:15:25,229 --> 00:15:28,520 Suze: That means that the 30 year bomb 204 00:15:29,140 --> 00:15:32,590 Suze: that was issued on July 17th 205 00:15:33,390 --> 00:15:45,989 Suze: at 3.625% pays $36.25 per year per every bond over 206 00:15:46,000 --> 00:15:50,750 Suze: the next 30 years. And that amount will never change 207 00:15:50,760 --> 00:15:55,890 Suze: because it's fixed. Remember a bond is $1000 208 00:15:56,609 --> 00:16:00,159 Suze: it's issued at par and that bond will pay you 209 00:16:00,169 --> 00:16:04,460 Suze: $36.25 per year. 210 00:16:05,750 --> 00:16:08,650 Suze: In fact, if you happen to be interested in 30 211 00:16:08,659 --> 00:16:13,489 Suze: year bonds at auction, the next one is August 10th. 212 00:16:13,679 --> 00:16:16,609 Suze: So you can check it out at Treasury direct dot gov. 213 00:16:17,219 --> 00:16:21,440 Suze: If you're interested, you also can check it out obviously 214 00:16:21,450 --> 00:16:25,909 Suze: at brokerage firms and things like that. So if you 215 00:16:25,919 --> 00:16:32,789 Suze: invested $10,000 at that last auction, you would have bought 216 00:16:32,799 --> 00:16:34,030 Suze: 10 bonds 217 00:16:34,320 --> 00:16:41,190 Suze: and you would be earning $362.50 in interest a year 218 00:16:41,200 --> 00:16:44,890 Suze: for the next 30 years if you kept the bond 219 00:16:44,900 --> 00:16:45,849 Suze: that long. 220 00:16:46,919 --> 00:16:51,469 Suze: So as I told you earlier, Fitch on August 1st 221 00:16:51,479 --> 00:16:55,599 Suze: downgraded the rating of the US, which caused a selling 222 00:16:55,609 --> 00:17:00,530 Suze: frenzy causing interest rates on treasuries to go up. So 223 00:17:00,539 --> 00:17:07,670 Suze: those bonds that were issued in July at 3.625% 224 00:17:08,500 --> 00:17:15,550 Suze: started to sell at $920 a bond on the secondary market. 225 00:17:16,359 --> 00:17:21,119 Suze: Remember a bond is issued at par at $1000 if 226 00:17:21,130 --> 00:17:24,010 Suze: interest rates start to go up in the economy, which 227 00:17:24,020 --> 00:17:28,969 Suze: they did, the price of that bond goes down. So 228 00:17:28,979 --> 00:17:35,829 Suze: on the secondary market, that bond was selling for $920 229 00:17:35,839 --> 00:17:36,649 Suze: a bond 230 00:17:37,349 --> 00:17:42,709 Suze: which is $80 less per bond than when they were issued. 231 00:17:43,089 --> 00:17:47,439 Suze: Now again, why did the price of that bond go down? 232 00:17:47,449 --> 00:17:48,959 Suze: Listen closely to me 233 00:17:49,599 --> 00:17:53,339 Suze: because interest rates in the economy started to go up 234 00:17:53,349 --> 00:17:57,250 Suze: on that Fitch news to about 4%. 235 00:17:57,849 --> 00:18:01,780 Suze: And who in the world would buy a bond that 236 00:18:01,790 --> 00:18:08,599 Suze: pays only 3.625%? Remember that is fixed for the life 237 00:18:08,609 --> 00:18:09,500 Suze: of the bond 238 00:18:10,089 --> 00:18:15,099 Suze: when you could buy a new bond for 4%. 239 00:18:16,079 --> 00:18:18,449 Suze: The answer to that is no one. 240 00:18:19,099 --> 00:18:22,729 Suze: So the price of that bond on the market 241 00:18:23,359 --> 00:18:28,489 Suze: goes down in price to make that fixed interest rate 242 00:18:28,500 --> 00:18:30,969 Suze: on that bond competitive. 243 00:18:31,689 --> 00:18:38,439 Suze: If you were to divide $36.25 the interest on one 244 00:18:38,449 --> 00:18:39,060 Suze: bond 245 00:18:39,810 --> 00:18:45,380 Suze: by $920 which was the current price of that bond 246 00:18:45,800 --> 00:18:47,130 Suze: a little bit ago. 247 00:18:47,810 --> 00:18:53,468 Suze: You'll find that it's about a 4% return on your money. 248 00:18:53,959 --> 00:18:57,760 Suze: Did that make sense? So when the price of something 249 00:18:57,770 --> 00:18:59,050 Suze: goes down, 250 00:18:59,680 --> 00:19:02,849 Suze: whatever it is yielding to you, this is true on 251 00:19:02,859 --> 00:19:07,310 Suze: dividends and everything, the more your yield happens to be, 252 00:19:07,319 --> 00:19:09,650 Suze: if that's when you buy it. 253 00:19:10,290 --> 00:19:15,099 Suze: So if that makes sense to you, then you understand 254 00:19:15,109 --> 00:19:18,260 Suze: why I bought that bond 255 00:19:18,869 --> 00:19:24,659 Suze: a little bit ago because now it was yielding me 4%. 256 00:19:25,680 --> 00:19:29,530 Suze: And remember if I did keep that bond for all 257 00:19:29,540 --> 00:19:35,629 Suze: 30 years when it matures, I would get $1000 a 258 00:19:35,640 --> 00:19:36,469 Suze: bond 259 00:19:37,579 --> 00:19:43,949 Suze: or par, but I only paid $920 for it. So 260 00:19:43,959 --> 00:19:46,550 Suze: I would make money there as well. 261 00:19:47,439 --> 00:19:52,109 Suze: So when buying a bond, you have the annual yield, 262 00:19:52,119 --> 00:19:53,889 Suze: the interest rate that it's paying, 263 00:19:54,680 --> 00:19:57,479 Suze: which is the interest rate that you are getting based 264 00:19:57,489 --> 00:20:00,630 Suze: on what you paid for that bond. But there's also 265 00:20:00,640 --> 00:20:05,239 Suze: what is called the yield to maturity, which takes into 266 00:20:05,250 --> 00:20:09,599 Suze: consideration the price difference of what the bond was purchased 267 00:20:09,609 --> 00:20:13,599 Suze: at and what you get when it matures. Now, let's 268 00:20:13,609 --> 00:20:16,030 Suze: just put a pin in all of that for a 269 00:20:16,040 --> 00:20:20,949 Suze: second because I understand that's a lot to digest, but 270 00:20:20,959 --> 00:20:23,010 Suze: you have to understand 271 00:20:23,329 --> 00:20:29,270 Suze: how bonds work. Now, obviously, I have no intention of 272 00:20:29,280 --> 00:20:34,619 Suze: keeping that bond for 30 years. However, the reason that 273 00:20:34,630 --> 00:20:39,300 Suze: I started buying it little by little these 30 years 274 00:20:39,310 --> 00:20:44,890 Suze: bonds is that eventually, in my opinion, interest rates have 275 00:20:44,900 --> 00:20:46,698 Suze: to go back down 276 00:20:47,560 --> 00:20:52,699 Suze: and remember when interest rates go down, the price of 277 00:20:52,709 --> 00:20:54,839 Suze: bonds go up 278 00:20:55,500 --> 00:20:59,640 Suze: and the longer the maturity, the more they go up, 279 00:20:59,650 --> 00:21:04,969 Suze: percentage wise. So a 30 year bond will go up 280 00:21:04,979 --> 00:21:10,949 Suze: more percentage wise than all the other treasuries out there. 281 00:21:12,459 --> 00:21:16,170 Suze: Why do I think that interest rates have to go 282 00:21:16,180 --> 00:21:18,469 Suze: down at some point? 283 00:21:19,500 --> 00:21:23,630 Suze: Well, because on Monday just a little bit ago, really, 284 00:21:23,900 --> 00:21:29,680 Suze: on July 31st, the treasury department issued a press release, 285 00:21:29,689 --> 00:21:38,770 Suze: upsizing its estimated borrowing for the July to September 2023 286 00:21:38,780 --> 00:21:45,250 Suze: quarter by $274 billion. 287 00:21:45,790 --> 00:21:49,910 Suze: They raised it to $1 trillion. 288 00:21:50,790 --> 00:21:55,800 Suze: It also pegged the borrowing requirements for the October to 289 00:21:55,810 --> 00:22:06,160 Suze: December quarter at $852 billion. So all told Uncle Sam 290 00:22:06,170 --> 00:22:10,020 Suze: is going to have to borrow a serious sum of 291 00:22:10,030 --> 00:22:17,300 Suze: money to keep thing going. Now, it's no surprise. Therefore, 292 00:22:17,489 --> 00:22:17,979 Suze: that 293 00:22:18,380 --> 00:22:25,010 Suze: on August 1st, that's why Fitch lowered their rating because 294 00:22:25,020 --> 00:22:30,188 Suze: they're afraid in my opinion come October, everybody's gonna start 295 00:22:30,199 --> 00:22:33,790 Suze: fighting again in Congress and they're not going to raise 296 00:22:33,800 --> 00:22:36,359 Suze: the debt limits and da, da, da da. And here 297 00:22:36,369 --> 00:22:38,430 Suze: we go all over again, 298 00:22:39,290 --> 00:22:44,500 Suze: but it is very hard to keep the economy stable 299 00:22:44,510 --> 00:22:48,719 Suze: when the government is paying such high interest rates on 300 00:22:48,729 --> 00:22:53,140 Suze: this ridiculous amount of money that they are borrowing at 301 00:22:53,150 --> 00:22:56,819 Suze: these interest rates. You know, it's very different way back 302 00:22:56,829 --> 00:23:01,069 Suze: when just a few years ago, they were lending you 303 00:23:01,079 --> 00:23:05,189 Suze: money at half a percent, 1% to the interest rates 304 00:23:05,199 --> 00:23:06,300 Suze: were so low. 305 00:23:07,209 --> 00:23:12,739 Suze: So they were funding their debt at very low interest rates. Now, 306 00:23:12,750 --> 00:23:18,760 Suze: they're funding this debt at pretty high interest rates. Now, 307 00:23:18,770 --> 00:23:21,579 Suze: that doesn't mean that these rates can't go higher, 308 00:23:22,270 --> 00:23:27,239 Suze: but eventually something has to change. 309 00:23:27,859 --> 00:23:34,229 Suze: I'm currently earning 4% on that first bond that I 310 00:23:34,239 --> 00:23:37,969 Suze: bought that I told you about just a little bit ago. 311 00:23:37,979 --> 00:23:42,949 Suze: And since then just this week, I bought another one 312 00:23:43,650 --> 00:23:49,399 Suze: and this time, my interest rate is at 4.3% on 313 00:23:49,410 --> 00:23:50,780 Suze: a 30 year bond. 314 00:23:51,930 --> 00:23:57,099 Suze: Now, why am I doing this? Because if interest rates 315 00:23:57,109 --> 00:24:02,218 Suze: were to eventually go down, listen to me closely here, 316 00:24:03,260 --> 00:24:07,579 Suze: I'm not doing it simply to get the four or 4.3% 317 00:24:07,589 --> 00:24:08,468 Suze: interest rate. 318 00:24:09,239 --> 00:24:13,650 Suze: But if, and that's a big if, but if interest 319 00:24:13,660 --> 00:24:19,390 Suze: rates were to eventually go down to just 3% 320 00:24:20,260 --> 00:24:25,930 Suze: the price of my 30 year bonds could easily go 321 00:24:26,000 --> 00:24:30,930 Suze: to $1110 a bond. 322 00:24:31,800 --> 00:24:36,800 Suze: So the very first one I bought at $920 a 323 00:24:36,810 --> 00:24:37,510 Suze: bond 324 00:24:38,150 --> 00:24:43,680 Suze: could easily, if interest rates go to just 3% could 325 00:24:43,689 --> 00:24:51,079 Suze: easily go up to $1110 a bond or that's approximately 326 00:24:51,160 --> 00:24:56,699 Suze: a 20% return on my money, which at that time 327 00:24:56,800 --> 00:25:00,979 Suze: I will probably sell them. And in the meantime, I'm 328 00:25:00,989 --> 00:25:07,379 Suze: still making 4 to 4.3% while I am waiting. 329 00:25:08,500 --> 00:25:12,948 Suze: That is why I'm doing it now. I would only 330 00:25:12,959 --> 00:25:17,689 Suze: do this if I could get at least 4% or 331 00:25:17,699 --> 00:25:21,890 Suze: more on my 30 year treasuries. I would only do 332 00:25:21,900 --> 00:25:27,290 Suze: this in small stages for it's possible that interest rates 333 00:25:27,300 --> 00:25:28,569 Suze: could go higher. 334 00:25:29,050 --> 00:25:33,079 Suze: And that's exactly what happened. I bought a chunk of bonds, 335 00:25:33,089 --> 00:25:37,979 Suze: the 30 year bonds at 4%. Then I bought another 336 00:25:37,989 --> 00:25:44,000 Suze: equal chunk at 4.3%. We'll just happen to see if 337 00:25:44,010 --> 00:25:48,219 Suze: they go higher or not. Now, if I am totally wrong, 338 00:25:48,229 --> 00:25:52,459 Suze: then my beneficiaries will own a 30 year bond. 339 00:25:53,199 --> 00:25:57,270 Suze: So I would not do this with money that you 340 00:25:57,280 --> 00:25:59,930 Suze: may need in just a few years. 341 00:26:00,520 --> 00:26:03,500 Suze: Now, obviously, again, there is no way for me to 342 00:26:03,510 --> 00:26:08,409 Suze: know what your personal financial situation is. So you have 343 00:26:08,420 --> 00:26:11,530 Suze: to decide what you want to do and if it's 344 00:26:11,540 --> 00:26:15,448 Suze: good for you, one other thing I want you to 345 00:26:15,459 --> 00:26:22,310 Suze: know through Treasury direct dot gov, you can buy bonds 346 00:26:22,319 --> 00:26:26,430 Suze: for as little as $100 347 00:26:26,750 --> 00:26:30,889 Suze: even though they're priced at par. So you would own 348 00:26:30,900 --> 00:26:35,589 Suze: 1/10 of a mom. So you can do this strategy 349 00:26:35,599 --> 00:26:38,929 Suze: if you don't have a whole lot of money. If 350 00:26:38,939 --> 00:26:41,469 Suze: you buy it through a brokerage firm 351 00:26:42,140 --> 00:26:50,239 Suze: or the secondary market, the minimum is $1000. So it's just, 352 00:26:50,250 --> 00:26:55,689 Suze: that's how it works for me personally. I have been 353 00:26:55,699 --> 00:27:01,609 Suze: buying them through my broker because when you buy it 354 00:27:01,619 --> 00:27:04,810 Suze: through Treasury direct dot gov or when you buy it 355 00:27:04,819 --> 00:27:05,849 Suze: at auction, 356 00:27:06,189 --> 00:27:10,689 Suze: you don't know exactly what the interest rate is going 357 00:27:10,699 --> 00:27:15,188 Suze: to be on that bond when it is issued at auction, 358 00:27:15,829 --> 00:27:20,359 Suze: when I buy it through my broker, I know exactly 359 00:27:20,369 --> 00:27:24,209 Suze: the price that I'm paying for that bond. And therefore 360 00:27:24,219 --> 00:27:28,699 Suze: I know exactly the interest rate that I'm getting. So 361 00:27:28,709 --> 00:27:31,810 Suze: it's just very easy for me to buy, to sell 362 00:27:31,819 --> 00:27:34,680 Suze: whatever it is that I want to do. 363 00:27:35,430 --> 00:27:38,938 Suze: Now, many of you have asked me if you can 364 00:27:38,949 --> 00:27:44,619 Suze: do this with exchange traded funds or bond funds. And 365 00:27:44,630 --> 00:27:50,459 Suze: for me personally, I would stick to individual bonds. And 366 00:27:50,469 --> 00:27:55,180 Suze: here is why back in 1981 367 00:27:55,719 --> 00:28:02,150 Suze: the 30 year treasuries were at about 15% which is 368 00:28:02,160 --> 00:28:09,119 Suze: what I bought for my clients individual 30 year bonds 369 00:28:09,130 --> 00:28:17,349 Suze: and we locked in 14.5 to 15% for 30 years. Now, 370 00:28:17,439 --> 00:28:21,089 Suze: many of the other brokers at that time 371 00:28:21,510 --> 00:28:27,910 Suze: were buying treasury mutual funds. ETF S hadn't been invented yet. 372 00:28:28,319 --> 00:28:33,419 Suze: So mutual funds at that time were loaded mutual funds. 373 00:28:33,430 --> 00:28:37,119 Suze: They didn't have no load, mutual funds for. There was 374 00:28:37,130 --> 00:28:44,579 Suze: a hefty commission for brokers to buy mutual funds that 375 00:28:44,589 --> 00:28:46,250 Suze: sold treasuries. 376 00:28:47,010 --> 00:28:52,359 Suze: If I bought 100,000 or 50,000 or even a million 377 00:28:52,369 --> 00:28:56,479 Suze: dollars of a 30 year treasury bond for my client, 378 00:28:56,709 --> 00:29:02,619 Suze: my total commission was $25. 379 00:29:03,310 --> 00:29:08,349 Suze: The other brokers that chose to do loaded mutual funds, 380 00:29:09,709 --> 00:29:13,280 Suze: they made 5% or more 381 00:29:14,140 --> 00:29:18,819 Suze: on whatever money was invested. So think about it, if 382 00:29:18,829 --> 00:29:24,719 Suze: they put $500,000 of their clients money into these loaded 383 00:29:24,729 --> 00:29:34,310 Suze: treasury mutual funds, they made $25,000 versus my $25. Big difference. Everybody. 384 00:29:35,500 --> 00:29:41,030 Suze: Now at the time of purchase, both the individual treasuries 385 00:29:41,040 --> 00:29:47,410 Suze: and the funds were paying about 14.5 to 15%. 386 00:29:48,020 --> 00:29:52,430 Suze: But as interest rates started to go down 387 00:29:53,300 --> 00:29:59,270 Suze: the 14.5 to 15% on the 30 year treasuries that 388 00:29:59,280 --> 00:30:04,979 Suze: I bought for my clients stayed at 14.5 or 15%. 389 00:30:05,040 --> 00:30:09,300 Suze: Remember that interest rate is fixed for the life of 390 00:30:09,310 --> 00:30:13,239 Suze: the bond and it's the price of the bond that 391 00:30:13,250 --> 00:30:14,790 Suze: goes up and down. 392 00:30:15,619 --> 00:30:18,390 Suze: So on the mutual funds. However, 393 00:30:19,140 --> 00:30:22,119 Suze: the interest rate which is not fixed. So on an 394 00:30:22,130 --> 00:30:26,030 Suze: ETF and a mutual fund today, the interest rate is 395 00:30:26,040 --> 00:30:27,260 Suze: not fixed. 396 00:30:27,939 --> 00:30:33,130 Suze: So when interest rates started to go down, the interest 397 00:30:33,140 --> 00:30:38,420 Suze: rate on the mutual fund that everybody had purchased was 398 00:30:38,430 --> 00:30:40,270 Suze: going down as well. 399 00:30:41,670 --> 00:30:47,280 Suze: But the price of the fund also really wasn't appreciating 400 00:30:48,030 --> 00:30:52,079 Suze: on the bonds that I had bought for my clients. 401 00:30:52,310 --> 00:30:54,839 Suze: When interest rates started to go down, 402 00:30:55,619 --> 00:30:59,010 Suze: the price of the bond started to go up and up. 403 00:30:59,020 --> 00:31:04,030 Suze: There was a time when it went from 15, 14.5 404 00:31:04,040 --> 00:31:10,469 Suze: down to 7% the price of that bond essentially doubled 405 00:31:11,310 --> 00:31:15,069 Suze: when I would look at the mutual funds that everybody 406 00:31:15,079 --> 00:31:16,280 Suze: had purchased, 407 00:31:17,369 --> 00:31:21,140 Suze: the price didn't go up like that of the mutual fund, 408 00:31:21,150 --> 00:31:26,180 Suze: but the interest rate had also continued to go down 409 00:31:26,189 --> 00:31:32,380 Suze: and down. It wasn't at 14.5 or 15% anymore. Why? 410 00:31:33,109 --> 00:31:38,780 Suze: Because in an ETF or a mutual fund, people continue 411 00:31:38,790 --> 00:31:43,699 Suze: to invest in the ETF and mutual fund as time 412 00:31:43,709 --> 00:31:48,280 Suze: goes on and the manager has to invest that money 413 00:31:48,329 --> 00:31:52,810 Suze: and buy bonds for whatever the interest rate is at 414 00:31:52,819 --> 00:31:53,880 Suze: that time. 415 00:31:54,989 --> 00:31:58,199 Suze: So it all gets diluted. 416 00:31:59,130 --> 00:32:04,170 Suze: That is why to this day, I don't buy bond 417 00:32:04,180 --> 00:32:12,609 Suze: ETFs or bond mutual funds. I only buy individual bonds. 418 00:32:12,780 --> 00:32:15,020 Suze: So lesson learned. 419 00:32:15,839 --> 00:32:21,250 Suze: All right. Now, we know why I've been buying 30 420 00:32:21,260 --> 00:32:25,949 Suze: year treasury bonds. I most likely will continue to do 421 00:32:25,959 --> 00:32:31,510 Suze: so depending on interest rates. But you want to make 422 00:32:31,520 --> 00:32:36,550 Suze: sure that you only do this really if interest rates 423 00:32:36,560 --> 00:32:39,310 Suze: are at 4% or higher. 424 00:32:39,689 --> 00:32:46,060 Suze: And it makes sense for you in your particular situation. Now, 425 00:32:46,069 --> 00:32:48,630 Suze: I hope that this Suze School was kind of a 426 00:32:48,640 --> 00:32:53,219 Suze: bonding experience between all of us. That was kind of stupid, 427 00:32:53,229 --> 00:32:53,660 Suze: wasn't it? 428 00:32:54,050 --> 00:32:57,020 Suze: But it's ok I said it, it's on the podcast 429 00:32:57,030 --> 00:33:01,469 Suze: what to do. But until Thursday, when Miss Travis joins 430 00:33:01,479 --> 00:33:05,239 Suze: us for Ask KT and Suze Anything, there's really only 431 00:33:05,250 --> 00:33:09,099 Suze: one thing that I want you to say every single day. 432 00:33:09,109 --> 00:33:13,140 Suze: And it is this today, wherever I go, I will 433 00:33:13,150 --> 00:33:17,920 Suze: create a more peaceful, joyful, and loving world. And if 434 00:33:17,930 --> 00:33:19,319 Suze: you do that, 435 00:33:19,640 --> 00:33:24,810 Suze: I promise you, you will be unstoppable. 436 00:33:30,329 --> 00:33:30,660 Music: Music (out).