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Suze Orman's Women & Money (And Everyone Smart Enough To Listen)
Why I Don't Like Target Date Mutual Funds
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Hi, everybody. Suzio here. Now, what is the goal of money? The goal of money is for you to be secure. And there is no better way for you to be secure than having an emergency savings account. It is essential for your financial foundation. So all of you should be participating in the Ultimate Opportunity savings account at Alliant Credit Union. Go to myalliant.com to find out more. And be secure. May 24, 2026. Welcome everybody to the Women and Money podcast as well as everybody smart enough to listen. Susie O here. And today is Susie School. I wish all of you a very, very happy and thoughtful, thoughtful Memorial Day weekend. And when I say thoughtful, it's because I hope you really think about what this weekend is really all about. One more thing. Tomorrow, May 25, is a person that I have worked with for over 20 years now by the name of Carla Fried, and it is her birthday day. And Carla, really many of you don't know this, but has been my editor, my co writer, has been with me through most of the New York Times books that I have written with her help. By the way, many of the blogs that you read that you get every single week. She has been there with me through thick and thin and she is absolutely brilliant. So, Carla, I just want to say once again, I thank God so much for your birth because you have brought so much depth and really intelligence to everything that everybody is reading, especially under my name. It is really many times, everybody, both of us, just so you know. And I just want to wish you the happiest, happiest birthday of all. All right, today, Susie School is all about Target Date mutual funds. I told you that on Thursday that I would explain to you why I do not like them. So today, for you to really understand why I don't like Target Date mutual funds, you need to also understand the bond market and what is happening in the bond market. So get out your Suzy notebooks and get ready to take notes. Okay, listen to me, everybody. Have you not heard me say what was was and what was will never be again? And what I mean by that, when I have said that to you over all these years, is that just because something worked one way in the past does not mean that that's how it's going to work in the future. All right? The future is changing. I know all of you must know that by now. AI alone is changing the future big time. So the way that we invest today for tomorrow is not how we invested more than just even a few years ago. Which, by the way, that is why it is so absolutely important that if you have not already registered for part two of the webinar that I gave on April 23, you need to go to Suziorman.com and do so now. We have over 100,000 of you who have. And by the way, if you have registered or you did register for the one on April 23rd, you don't have to do it again, just so you know. But it is on that webinar that we're going to talk about investing for the future, not how you invested in the past. And the entire webinar is going to be hosted by just me and Keith Fitzgerald. And you have got to be there. Seriously, it may be the most important webinar I have ever given in my entire life. All right, done. Let's talk about the bond market. Now, most people, you only obsess over the stock market, right? It's a stock market. It goes up, it goes down. And the stock market is what gets all the drama. But really, truly sophisticated investors, you know what they watch? They watch the bond market. Because the bond market is where this serious money, everybody quietly tells you what it really thinks. And right now, the bond market is sending a message. Warning, warning, warning. The long term treasury yields, the 30 years, they have risen sharply. And truthfully, these yields are up to levels that we have not seen in a very long time. And does that matter to you? Oh, you betcha it does. It matters far more than most of you realize. And why is that? Everybody, treasury yields quietly, whether you know it or not, they sit underneath almost everything in your financial life. Your mortgage rate, your car loan, your credit card, the cost for business to borrow, commercial real estate, even the cost for the government itself to operate. When those yields rise, money becomes more expensive for you, for everybody. And that is where a lot of you got blindsided. And that included me, by the way, that we assumed that the moment the Federal Reserve started to lower its short term rate that your mortgage rate would fall, bond rates would fall. Because bond rates would fall, the price of bonds would go up. Do you remember me even a long time ago saying I would buy a 30 year bond rate at 4, 4.5%, 5%. Because the rates are going to go down. And when they go down, those bonds should go up in value. Well, guess what? That didn't happen. And here we are now back where the 30 year is at about 5.19%. Put a pin in that for a second because I know what all of you are thinking at this moment in time. You are wondering Susie, does that mean I should buy the 30 year bond? What should I do right now? I have to tell you, the answer to that question really depends on what happens with oil. Oil is the key to everything at this current moment in time. Not forever, but right now. Are we going to stay at war? Are we not going to be at war? This is with Iran. What's going to happen? Because whether you know it or not, oil and what's happening over there, it flows through almost everything in your life. Transportation, airlines, shipping, the food on your table, manufacturing, your utilities, even packaging your products that come in. So when oil jumps, and you've seen it jumping all over the place, it goes up, it goes down, it goes up and goes down depending on what the President says on one particular day or not. So therefore, what should you be doing right now given that nobody knows what's going to happen over there? Hey, I don't have a problem if you want to dip your toe, not a lot of money, but dip your toe into the 30 year bond. I told you, I think on Thursday I bought some. If interest rates continue to go up in the 30 year bond, I will buy some more. Is it possible that they could go even as high as 6%? Listen, anything is possible today. That's a point that I just want to make for you. However, let me just for right now go back to Interest rates on bonds are going up and you got to pay attention to that, you know, years ago and this is the key here. When interest rates went down, almost everything went up. Stocks rose, real estate rose, bond prices rose, private equity rose, even bad financial decisions often worked out because cheap money has a way everybody of just covering up mistakes. So all of you got used to seriously that interest rates can go up but interest rates will go down. That pattern has broken and it's been broken since 2020. I want you to think about this. Interest rates have gone up. The economy is not that great. Everything is kind of all over the place. Yet the stock market has been going up and up and up. So it isn't tied anymore to oh, if interest rates go down, everything goes up, the price of bonds and everything. Now interest rates have gone up, the price of bonds have gone down, but the stock market has skyrocketed. So the system has changed. But here's the question. Is the way that you invest, has it changed? Has your understanding of how things really work changed? Because if it hasn't changed, this is where I personally believe that you can get in trouble. So that brings us to the topic of Today's Susie School that I told you I was going to talk about on Thursday's podcast, Target Date Mutual funds. Now, most of you own target date mutual funds in your retirement accounts because in 401ks, 403bs, whatever it may be, you are approached and you are told or your friends have told you or you think, oh, all I have to do is put my money into this one mutual fund. I do not have to watch it. All I have to do is pick the date target a date that I am going to retire. So if I'm 35 right now, maybe I would pick a target date mutual fund that's 30 years from now. So it would be 2056 would be the target date mutual fund that I would pick. So you target the age that you are going to retire or you think you're going to retire and you put your money in this fund. In the beginning years when you're younger, the majority of the money is invested in stocks with the theory being that as you get closer and closer to retirement that they shift more and more of your money into bonds to keep it safe. That is how it works. That is a target date mutual fund and you love it because you get to be lazy. You don't have to think about it, you don't have to wonder somebody else is doing the investing for. And you're fine with that. Well, you shouldn't be fine with that, everybody, because what are the stocks that they're investing in? All kinds of things you need to know. And it just may be that, by the way, you will probably learn on the webinar on June 4th at 6:00pm East Coast Time that it is just possible that index fund investing is starting to change. Things are changing and you have to change with it when they change, regardless of what the past tells you. And it drives me crazy when people are saying, you know, Susie, index ETFs or mutual funds have always outperformed managed mutual funds or ETFs. Now in the past that was true, but it may not continue to be true as time goes on and you may be leaving money on the table and you have to understand those things. But back to target date funds. So when you are invested in a target date fund, your investments are allocated according to your age. You can't allocate things according to your age because you don't know exactly, number one, when you really going to retire. Number two, what what is happening in the economy at the time you want to retire and do you even need the money from your 401k or 403b or Roth IRA or whatever it may be. Maybe you're in a situation where your money is so well invested that the truth is you want to be more aggressive. You don't want to be in bonds. What if you were retiring this year? You have the stock market that is absolutely skyrocketing. Correct. Don't you think you would rather be invested in the stock market at this point in time if you were retired? Especially if you had some money that was liquid so that it could carry you for three or five years of expenses and let that money grow, then have it 100% almost invested in bonds at the time when interest rates are going up and up and up and up. Because remember everybody, a bond is a fixed income vehicle, which means when interest rates go up, the value of that bond goes down. So you are not guaranteed that when in fact you need your money when you do retire, that the money that you have in your 401k is keeping pace with inflation and will give you the income that you need. And all of it happens to be where possibly in bonds because of y your age. That makes no sense to me at all. Again, write this down. You do not invest solely according to your age. You invest according to what's happening, number one in the economy and number two, what's happening in your own personal economic life. You are not all the same, but when you go into a target date mutual fund, your money is treated like you get older, it's in bonds. Now a lot of you are going to say, but Susie, my target date mutual fund doesn't really risk my money because it's in short term bonds. So I'm not going to get hit. It won't have a big downward move in case interest rates go up. Put a pin in that for a second. When you have a longer term bond, 20 years, 30 years versus three months, six month, whatever it may be, maturities, the longer the maturity of the bond, the more fluctuation it has. When interest rates go up and interest rates go down again, if interest rates in the world go up, the value of your bonds go down. If interest rates go down, the value of your bonds go up. Therefore, if you have a 30 year bond and interest rates go up, it's going to go down in price more than a two year treasury note or a short term treasury or whatever bond they may be in. So therefore a lot of you feel like you're absolutely safe. Why? Because your money is in short term bonds within your target date mutual fund. All Right, everybody listen to me. If they're in short term funds, what interest rate are you currently making and are you keeping up with inflation? Because I want to talk about inflation here and why I think more of you need to growth than safety. Listen, there's nothing wrong with going into individual stocks or ETFs that pay a great dividend yield for you to get income and possibly growth on your money as well, versus a bond. Now, that's not to say that some of your money shouldn't be in Treasuries locking in a nice rate, but not all of it. And for many of you, the majority of your money is where in your retirement accounts. So the last thing I want for you at this point in time is to have 100% of your money when you get older in a target date mutual fund. And that's what you are retiring with. Doesn't make any sense to me. Let me go back to inflation for a second. Listen, inflation is emotional. It is. And the problem is this. When you hear economists, and it drives me crazy. Can you imagine what I'm like when I'm driven crazy? All right? They talk about inflation as if you only feel this year's numbers, as if you wake up each January and reset. That is so stupid, I can't even take it. You do not feel the annual number. You feel the cumulative number. If your grocery bills climb 5% over five years, you feel 25%. You don't feel just a 5% increase this year. You feel a 5% increase year after year after year. And here's what's so sad. You do not feel some cooler number that gets celebrated on the news when they say prices have gone down. Have you seen prices go down? Really? And that is exactly why so many of you still feel squeezed. Even when you keep hearing that inflation is calming down, it is not calming down. Everybody and your life is still expensive. Your real life. And that is what is important, is that you have to understand things are getting more expensive. And the problem is this. And in 2020, inflation started to go up because of the pandemic, certain things like that. And now because of oil and everything else, inflation is on top of something that already had been inflated. That's why your homes are more expensive, your insurance is more expensive, your car, interest rates, everything is more expensive. So it is very, very important that for you to have a successful retirement, that your money is doing better than inflation, that you don't hear these words transitory. This is not transitory. This is just how life is today. And yeah, you hear my voice feeling passionate about this. Because I don't want you to buy the ticket that many people are trying to sell you. I want you to buy the ticket that gets you on a financial train ride to take you where you are meant to be. And where are you meant to be? You are meant to be in a situation where you are out of debt, you own your home outright, you have money for retirement, you can keep up for inflation, you can live the life that you deserve to live. Just that simple. So a target date mutual fund is not going to do that for you because again, interest rates go up and I personally think they're going to stay up for quite a while. I just do. I don't see what would make them come down. So if interest rates are up here, that means bond prices are down. And if you are retiring now and all your money is in a target date mutual fund, you're not getting the interest that you should be getting on that money and you are not getting the growth that you need to keep up with inflation. Now that is just a very small reason why I don't like target date mutual funds. Now, I know what you're thinking. You're thinking, well, Susie, if you don't like target date mutual funds, what do you want me invested in? And that is exactly why I want all of you to tune in to the webinar on June 4, 2026 at 6pm East Coast Time. Listen, just register if you can't make it. It will be repeated three or four times after that until 12:00am Pacific Coast Time on June 8th. So you will catch it somewhere. Also, if you want, it will be aired simultaneously on my YouTube channel, YouTube.com Susie Orman but I want you to register and be part of it. One thing all of you will be getting who have registered will be a quarterly update for one year from both Keith and myself telling you about the investments we're going to talk about. How have they done, what you should be doing. So we're going to keep you informed. And as well there will be birthday pricing because the very next day is my 75th birthday and we will be celebrating with you. And one way I always celebrate my birthday is I don't want a gift. But I love gifts giving gifts. So I'm asking you to be there and take advantage of it. Do you understand the point of this podcast today, this Suzy School? The past is the past and it may no longer predict the future and what you should do with money. I want you to be an active Investor where you are deciding, oh, should my money be in index funds? In this, in that, should there be some international funds? What should I be invested in? And you like to watch it. You make decisions. And for those of you who are in Roth retirement accounts, like individual retirement accounts, where you have choices of what you really can invest in, such as ETFs, well, you're going to learn that Fitz is finally bringing out his exchange traded fund. The symbol will be Fitz. You can't buy it yet. We can't really talk about it because of SEC rules yet, but I want you to hear about it. So I really think that that ETF will solve a lot of your problems for today as well as in the future. All right. I think that's probably enough for one day, don't you think? Because it is Memorial Day weekend and I don't want to take up too much of your time at the beach or wherever you happen to be. But Until Thursday, when Ms. Travis joins us again, there's only really one thing that I want you to remember when it comes to your money, and it is this. People first, then money, then things. Now you stay safe. And Carla, happy birthday tomorrow. Bye Bye. We are strong we are wise we will not apologize we are here we will thrive Together we will rise we're the little bit of faith and everything it takes we are strong we are wise together together we will rise. I know and you know that there are many of you out there that have home equity lines of credit. But do you have one with a 3.99% fixed interest rate for six months and then prime plus zero? I doubt it. So I want you to go to myalliant.com and check out what I think is is the best HELOC on the market today.
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Neither Suze Orman Media nor Susie Orman is acting as a certified Financial Planner Advisor, a certified financial analyst, an economist, cpa, accountant or lawyer. Neither Suze Orman Media nor Susie Orman make any recommendations as to any specific securities or investments. All content contained in this podcast 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 losses which may arise from accessing or reliance on information in this podcast. And to the fullest extent permitted by law, we exclude all liability for loss, damages, direct or indirect, arising from the use of this information. The must have documents mentioned in these podcasts are legal documents created by a lawyer and and distributed by Hay House.