You can now expect your latest quarterly 401 (k) statement from your employer any day showing the present value of your life savings, and you are likely to expect the inventory and fund portion of your savings to have lost value since your last statement. Knowing that inflation is much higher than normal, interest rates are rising, and the economy may be heading into a recession, it is not surprising that your investments are affected. But for the first time, in addition to your current 401 (k) balance, companies are showing projections that illustrate what your lump sum savings might look like monthly income after you retire. These figures may be lower than you thought.
It can be overwhelming to find a financial advisor you can trust who has the expertise you need and who is committed to working in your best interests. Therefore, you should consider Wealthramp’s free financial advisor matchmaking service. Every advisor in the Wealthramp network is strictly screened. Answer some quick questions, review your advisor matches, and schedule a free meeting with any or all of your appropriate advisors. Wealthramp will never sell your data. You will not get intrusive sales calls from them. If you’re ready to see your best advisor contests, start now.
So what’s next? As the Fed grows into a slowing economy, there is a high risk of recession, and even a slight contraction in economic growth could take months or years. Understandable signs of recession include when retail sales fall, manufacturing slows down, businesses stop renting, and more people either lose their jobs or are laid off. As worrying as the news may appear, recession is part of the normal business cycle. Instead of reacting, this is a good time to review your financial plan to position yourself to prosper.
Whether you are managing your finances on your own or with a trusted financial advisor to help you manage part or all of your portfolio, here five important actions you need to take now to curb your finances in difficult economic times.
1) Keep your credit score high
In a time of high inflation, it costs more for everyone to borrow money, regardless of their credit score. However, people with lower credit scores will suffer even more. Lenders ask less of borrowers who have shown they will repay loans on time as agreed. Banks use your credit score as a handy way to see what kind of lender you are. If you have over time become accustomed to paying off debt, lenders will be wary of lending you money. The shorthand metric used to measure lending behavior is your credit score – a low one means borrowers are worried that you will not repay them. To account for that risk, borrowers are asking more to lend to doubtful lenders in the form of higher interest rates.
This is not the time to allow your credit rating. If you do need to borrow money, you will want to do so at the lowest possible interest rate, which is reserved for those who have high credit scores of over 700. If you have credit card balances year after year, have you looked at the interest rate you pay? A typical credit card charges you more than 25% in annual interest. For example, imagine buying a set of summer patio furniture for $ 10,000. If you have an outstanding balance of $ 10,000 on your credit cards and you are not paying it off, it’s like adding $ 2,500 to what you paid for the table and chairs.
2) Keep your cash reserves
It’s important to get to the point where you know you ideally have six to 12 months of ready cash in an accessible account for emergencies and unexpected expenses. In a recession, that reserve fund becomes even more essential in case you lose your job or any major unexpected event happens to you and your family. If you have enough of a spare pillow, you will sleep better. The downside is that banks do not pay much on their savings or money market accounts, but the advantage is that you will be able to access money immediately without having to sell potentially lost shares to raise money when the market is down. It also gives you the freedom to know you do not have to take out a loan when interest rates rise. It seems unfair that banks are quick to raise lending rates and much slower to raise interest rates on savings accounts, but the financial security that comes with liquid cash reserves is worth it. The best way to put extra dollars aside is to make the lifestyle choice to live below your means.
3) Invest, but do not gamble
Long-term inflation eats into your savings and investment returns. When inflation is high – and we’ve recently seen inflation reach 8.6% – it means you pay more, but get nothing in return. An inflation rate close to 9% is four times higher than the norm. And over the years, even at lower rates, inflation has taken a toll. The best way to stay ahead of inflation is to invest in a diverse portfolio of stocks, as over time stocks tend to grow faster than inflation.
If you are not sure how to build a diversified portfolio designed to protect and grow your money, this is where an established financial advisor who is independently and thoroughly screened can help. It can be overwhelming to find a financial advisor you can trust who has the expertise to provide for your financial needs and is committed to working in your best interests. That’s why you might want to consider Wealthramp’s free financial advisor matching service. Every advisor in the Wealthramp network is strictly screened. Answer a few quick questions, review your advisor matches, and schedule a free meeting with any or all of your appropriate advisors. Wealthramp will never sell your data. You will not get intrusive sales calls from them. If you’re ready to see your best advisor contests, start now.
Take from the experts – investment is the turtle, not the rabbit. John Bogle of Vanguard Group said investing is supposed to be boring – investment guru Ben Stein asks what’s wrong with averaging? Billionaire investor Warren Buffett has never gambled. Buffett earned his billions through prudent, consistent value investing. He missed the best moment to get into Apple (AAPL). To this day, he is still not invested in Tesla (TSLA). He does not understand Bitcoin and does not want to learn. Throughout his investment career, he has rarely achieved a box office victory. So how did he accumulate so much wealth? In addition to careful investment, one reason that is often overlooked is that he has lived a very long life.
4) Look for inflation hedges
Another tactic during a recession is to choose investments that serve as hedges against inflation over long periods of time. Gold and commodities are the best short-term investments to protect your portfolio from stock market shocks because commodities like gold tend to move in the opposite direction of stocks. However, gold is a weak long-term investment, which is why many fiduciary financial advisers recommend hedging only about 5% to 10% of your portfolio. When trying to beat inflation, one of your best tactics is to fully diversify your portfolio. This does not mean choosing randomly traded funds in different sectors. Diversification requires you to create a plan that you stick to and review when market indicators show you that it’s time. Your best bet is to liaise with a financial advisor who can look at your portfolio and help you make sure it is diversified.
5) Brush up your resume and improve your skills
At the moment, unemployment is at a historic low in the US Whether it is shallow or deep, recession often leads companies to lay off employees. The best way to protect yourself from losing your job and to ensure that you succeed in getting a new job if necessary is to make yourself as valuable an employee as possible. If your current company offers education compensation, jump on that benefit and work on a degree or certification that can increase your future earnings. There are also low cost or free training courses that you can pay for yourself to boost your resume. Keep track of your performance at work to turn a standard resume and cover letter into one that helps you stand out and attract the right attention. And stay connected now with your professional and personal network.
Actions to take today
While taking defensive steps to protect yourself and your family from recession, decide whether to do it yourself using digital tools or working with a strictly selected fiduciary financial advisor who only works for you, not as an agent for a brokerage firm. or insurance company. If you are approaching retirement, choose a fiduciary who has the expertise and specializes in retirement income planning. They can help you:
- Make a tax-focused plan on your own or with their advice
- Develop an investment strategy that you will be able to stick to over time
- Design ways to pay off higher interest debt
- Set up cash accounts
Finding the right financial advisor can be challenging. Let Wealthramp help you find the right advisor who will help you with your personal financial needs and situation.
Pam Krueger is a recognized investor advocate, award-winning personal finance journalist, and founder and CEO of Wealthramp, a free advisor-matching platform that connects people with strictly screened financial advisors. She is also the creator and co-host of MoneyTrack, which aired on PBS from 2005-2019, and Friends Talk Money podcast for PBS Next Avenue which is currently in its 7th season.