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Interview With Terry Savage

Aired September 17, 2003 - 15:43   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


KYRA PHILLIPS, CNN ANCHOR: Well faced with increasing competition from discount brands, R.J. Reynolds Tobacco is making some serious job cuts. About 2,600 workers will lose their jobs as the company tries to control costs. That's about 40 percent of the remaining work force.
MILES O'BRIEN, CNN ANCHOR: The R.J. Reynolds layoffs are the latest evidence that plenty of people are still losing their jobs in our rather rocky economy. So what should you do to protect what you have, and keep it as a nest egg for the future?

PHILLIPS: We're joined now by money expert Terry Savage with a few answers here. Of course she's author of "The Savage Truth on Money." She's been a guest many of times. Nice to have you in-house.

TERRY SAVAGE, AUTHOR, "THE SAVAGE TRUTH ON MONEY": Good to be here.

PHILLIPS: Is that too general of a question, how do we save money? How do we have a nest egg looking at all the (UNINTELLIGIBLE)?

O'BRIEN: That's the ultimate question.

PHILLIPS: Yes, exactly.

(CROSSTALK)

SAVAGE: And I want you to retire rich as a matter of fact. I want everyone to retire rich. It's not an overnight process. I was really amazed in the 1998, '99 period when people thought, Oh my goodness. Well if I growing my money at 26 percent a year, I can retire the next year or year after. That's not the way investments work.

O'BRIEN: Fish in a barrel. We kind of got carried away, didn't we?

SAVAGE: Yes, we did. But I'll give you some optimistic news. There's never been a 20-year period where you would have lost money in a diversified portfolio of large company stocks, dividends reinvested.

(CROSSTALK)

PHILLIPS: Not if we stay working together.

(CROSSTALK) SAVAGE: ... most valuable asset. Younger people get cheap tuition, older people learned an expensive lesson because they don't have time on their side. And it's going to be difficult for people to retire in the sense that they used to, which is, quit, play golf all day long. But we're all going to live longer.

O'BRIEN: We're going to be bored out of our mind.

All right, Mary in Chapel Hill has an e-mail for you. "Where is the best place to put retirement savings when this country falls into a deflationary period?" Of course, one key thing here, she didn't say her age. That's an important thing. Let's assume she's 40.

SAVAGE: Well, the fact is, there's a big debate. You said -- Mary said when we go into deflation. The Feds are watching deflation. People losing jobs. That's a sign of deflation. Excess capacity in factories around the world, that's deflationary.

But the Fed hinting that it will print enough money to get us through the period is a very inflationary concern. And some say would you should have gold stocks or mutual funds in your portfolio to protect against inflation. And of course anticipating deflation, I advise people to lock up bonds. But before, at higher rates.

Right now I'm in the chicken money stage, since we're so well balanced. If you don't know, that money belongs in short-term money market kinds of investments. While you have a portion of your investments at age 40, you've got that 20 years, and then some, continuing to invest in a stock market mutual fund.

PHILLIPS: We got a number of e-mails, of course. But I've got to ask you about this one article. This comes from one of our writers so I have to ask you. She found this in "BusinessWeek" and the title is "Don't Dump Your Funds, Not Yet Anyway." Think twice about quitting scandal tainted mutual funds.

(CROSSTALK)

PHILLIPS: ... strong and Bank One, Bank of America, Janis.

SAVAGE: Some of these companies, or at least people that work for them, allowed some unconscionable things. But that shouldn't taint the entire mutual fund industry.

It's a multi-billion-dollar way of diversifying your money. The major mutual fund companies give fair and honest management, low fees. And that's something you should always check. And a diversified professional way.

I know I'm spouting the party line. But I don't know of a better way for ordinary people to put the $300 or $400 a month into an IRA or 401(k) plan. And if you believe in the future of America, if you thought it was all over, you would quit investing.

But look, we've had a 25 percent rally this year alone in just in the large company stocks, the major indexes. More in some of the techs. So you can't give up, because nobody knows when to get in and when to get out and when to get back in again. I just believe you consistently invest over the long run.

O'BRIEN: It's that roller coaster ride. Try to even it out.

Ron in Seattle has this for us. "How is an unemployed person in their 20s to 40s supposed to build a nest egg when their only source of income is unemployment?"

SAVAGE: Ron, you have to believe -- that's what I said, if you believe in the future of America -- you have to believe that your talents and your skills and the new things you will learn will be put to good use in a job.

One of the sad things about the unemployment statistics is they don't count a lot of people who have literally given up hope for a job. But we see signs of life in the economy now. There has never been a recession I don't think we're going to have anything like the '30s, there's never been a recession where it hasn't looked gloomy from the point of view that you've had when you're unemployed.

But there wasn't a time when this country didn't offer opportunities. And we'll get around to it as this cycle returns.

PHILLIPS: Jake in Utah wants to know -- "I will graduate from college next year. What advice would you give to a youngster who would like to get started with a solid financial plan?"

Wow, thinking ahead.

(CROSSTALK)

SAVAGE: First of all, the critical ingredient, Jake, is to get control of your money. I would start out by paying your bills online.

You know, one of the biggest problems people have is they don't know what's coming in, what's going out, they get buried in debt. Jake, start by paying your bills online. Go to any bank's Web site, sign up for online bill paying, get that paycheck direct deposited, track your payments, put them in categories.

Be sure to sign up for the 401(k) plan the minute you're eligible at work or an individual retirement account. Do it automatically. Don't think about whether it's a good time or a bad time. Put the money away. Time's on your side. If you put away $2,000 a year, Jake, every year for the next year for 50 years in an IRA, and it grows at the historical rate of a little over 10 percent, in 50 years, Jake, you've got $3.1 million, $3.1 million of your own, if America's here and the stock market continues its average 10 percent. Not every year.

O'BRIEN: By the time he retires, that'll buy a Yugo.

(LAUGHTER)

SAVAGE: I hope it will buy a lot more than that. (CROSSTALK)

O'BRIEN: Leonard in Indianapolis has this for us. "I've stopped using credit cards and want to stop paying into my 401(k) and start placing that extra money each month on credit card debit instead. Is this a good thing?" This is a novel approach here.

SAVAGE: You know, I want you to do both. That's the critical ingredient. First of all, you'll never get a chance like your 401(k). It's a deduction, your company will match it. It will grow tax deferred.

(CROSSTALK)

O'BRIEN: ... do the match. You got to at least meet the match, right?

SAVAGE: Absolutely.

Now, somewhere there's a way to make more money. Even if you can't squeeze out money from what you're making now. Get a weekend job, an evening job. (UNINTELLIGIBLE) double the minimum monthly payment on that credit card. And so many people are only paying the minimum. If you could double the minimum and never charge another penny, your credit card would be paid off in about three years.

So, if you're buried in debt, that could be the greatest burden of all. It could take 25, 30 years to pay off that credit card debt. I want you to get out from under it. But don't give up that free match in tax deferred growth in your 401(k). So do both.

PHILLIPS: Terry Savage, great advice.

(CROSSTALK)

PHILLIPS: Come visit us again.

SAVAGE: I will.

O'BRIEN: Toughness and optimism from Terry Savage.

SAVAGE: There's great opportunity out there. Don't forget it.

PHILLIPS: We'll talk to AOL Time Warner later.

SAVAGE: Yes, later.

O'BRIEN: Great to meet you in person.

SAVAGE: Thanks.

O'BRIEN: It's just Time Warner now, by the way.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired September 17, 2003 - 15:43   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Well faced with increasing competition from discount brands, R.J. Reynolds Tobacco is making some serious job cuts. About 2,600 workers will lose their jobs as the company tries to control costs. That's about 40 percent of the remaining work force.
MILES O'BRIEN, CNN ANCHOR: The R.J. Reynolds layoffs are the latest evidence that plenty of people are still losing their jobs in our rather rocky economy. So what should you do to protect what you have, and keep it as a nest egg for the future?

PHILLIPS: We're joined now by money expert Terry Savage with a few answers here. Of course she's author of "The Savage Truth on Money." She's been a guest many of times. Nice to have you in-house.

TERRY SAVAGE, AUTHOR, "THE SAVAGE TRUTH ON MONEY": Good to be here.

PHILLIPS: Is that too general of a question, how do we save money? How do we have a nest egg looking at all the (UNINTELLIGIBLE)?

O'BRIEN: That's the ultimate question.

PHILLIPS: Yes, exactly.

(CROSSTALK)

SAVAGE: And I want you to retire rich as a matter of fact. I want everyone to retire rich. It's not an overnight process. I was really amazed in the 1998, '99 period when people thought, Oh my goodness. Well if I growing my money at 26 percent a year, I can retire the next year or year after. That's not the way investments work.

O'BRIEN: Fish in a barrel. We kind of got carried away, didn't we?

SAVAGE: Yes, we did. But I'll give you some optimistic news. There's never been a 20-year period where you would have lost money in a diversified portfolio of large company stocks, dividends reinvested.

(CROSSTALK)

PHILLIPS: Not if we stay working together.

(CROSSTALK) SAVAGE: ... most valuable asset. Younger people get cheap tuition, older people learned an expensive lesson because they don't have time on their side. And it's going to be difficult for people to retire in the sense that they used to, which is, quit, play golf all day long. But we're all going to live longer.

O'BRIEN: We're going to be bored out of our mind.

All right, Mary in Chapel Hill has an e-mail for you. "Where is the best place to put retirement savings when this country falls into a deflationary period?" Of course, one key thing here, she didn't say her age. That's an important thing. Let's assume she's 40.

SAVAGE: Well, the fact is, there's a big debate. You said -- Mary said when we go into deflation. The Feds are watching deflation. People losing jobs. That's a sign of deflation. Excess capacity in factories around the world, that's deflationary.

But the Fed hinting that it will print enough money to get us through the period is a very inflationary concern. And some say would you should have gold stocks or mutual funds in your portfolio to protect against inflation. And of course anticipating deflation, I advise people to lock up bonds. But before, at higher rates.

Right now I'm in the chicken money stage, since we're so well balanced. If you don't know, that money belongs in short-term money market kinds of investments. While you have a portion of your investments at age 40, you've got that 20 years, and then some, continuing to invest in a stock market mutual fund.

PHILLIPS: We got a number of e-mails, of course. But I've got to ask you about this one article. This comes from one of our writers so I have to ask you. She found this in "BusinessWeek" and the title is "Don't Dump Your Funds, Not Yet Anyway." Think twice about quitting scandal tainted mutual funds.

(CROSSTALK)

PHILLIPS: ... strong and Bank One, Bank of America, Janis.

SAVAGE: Some of these companies, or at least people that work for them, allowed some unconscionable things. But that shouldn't taint the entire mutual fund industry.

It's a multi-billion-dollar way of diversifying your money. The major mutual fund companies give fair and honest management, low fees. And that's something you should always check. And a diversified professional way.

I know I'm spouting the party line. But I don't know of a better way for ordinary people to put the $300 or $400 a month into an IRA or 401(k) plan. And if you believe in the future of America, if you thought it was all over, you would quit investing.

But look, we've had a 25 percent rally this year alone in just in the large company stocks, the major indexes. More in some of the techs. So you can't give up, because nobody knows when to get in and when to get out and when to get back in again. I just believe you consistently invest over the long run.

O'BRIEN: It's that roller coaster ride. Try to even it out.

Ron in Seattle has this for us. "How is an unemployed person in their 20s to 40s supposed to build a nest egg when their only source of income is unemployment?"

SAVAGE: Ron, you have to believe -- that's what I said, if you believe in the future of America -- you have to believe that your talents and your skills and the new things you will learn will be put to good use in a job.

One of the sad things about the unemployment statistics is they don't count a lot of people who have literally given up hope for a job. But we see signs of life in the economy now. There has never been a recession I don't think we're going to have anything like the '30s, there's never been a recession where it hasn't looked gloomy from the point of view that you've had when you're unemployed.

But there wasn't a time when this country didn't offer opportunities. And we'll get around to it as this cycle returns.

PHILLIPS: Jake in Utah wants to know -- "I will graduate from college next year. What advice would you give to a youngster who would like to get started with a solid financial plan?"

Wow, thinking ahead.

(CROSSTALK)

SAVAGE: First of all, the critical ingredient, Jake, is to get control of your money. I would start out by paying your bills online.

You know, one of the biggest problems people have is they don't know what's coming in, what's going out, they get buried in debt. Jake, start by paying your bills online. Go to any bank's Web site, sign up for online bill paying, get that paycheck direct deposited, track your payments, put them in categories.

Be sure to sign up for the 401(k) plan the minute you're eligible at work or an individual retirement account. Do it automatically. Don't think about whether it's a good time or a bad time. Put the money away. Time's on your side. If you put away $2,000 a year, Jake, every year for the next year for 50 years in an IRA, and it grows at the historical rate of a little over 10 percent, in 50 years, Jake, you've got $3.1 million, $3.1 million of your own, if America's here and the stock market continues its average 10 percent. Not every year.

O'BRIEN: By the time he retires, that'll buy a Yugo.

(LAUGHTER)

SAVAGE: I hope it will buy a lot more than that. (CROSSTALK)

O'BRIEN: Leonard in Indianapolis has this for us. "I've stopped using credit cards and want to stop paying into my 401(k) and start placing that extra money each month on credit card debit instead. Is this a good thing?" This is a novel approach here.

SAVAGE: You know, I want you to do both. That's the critical ingredient. First of all, you'll never get a chance like your 401(k). It's a deduction, your company will match it. It will grow tax deferred.

(CROSSTALK)

O'BRIEN: ... do the match. You got to at least meet the match, right?

SAVAGE: Absolutely.

Now, somewhere there's a way to make more money. Even if you can't squeeze out money from what you're making now. Get a weekend job, an evening job. (UNINTELLIGIBLE) double the minimum monthly payment on that credit card. And so many people are only paying the minimum. If you could double the minimum and never charge another penny, your credit card would be paid off in about three years.

So, if you're buried in debt, that could be the greatest burden of all. It could take 25, 30 years to pay off that credit card debt. I want you to get out from under it. But don't give up that free match in tax deferred growth in your 401(k). So do both.

PHILLIPS: Terry Savage, great advice.

(CROSSTALK)

PHILLIPS: Come visit us again.

SAVAGE: I will.

O'BRIEN: Toughness and optimism from Terry Savage.

SAVAGE: There's great opportunity out there. Don't forget it.

PHILLIPS: We'll talk to AOL Time Warner later.

SAVAGE: Yes, later.

O'BRIEN: Great to meet you in person.

SAVAGE: Thanks.

O'BRIEN: It's just Time Warner now, by the way.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com