How to protect your money from inflation, higher rates and falling stock prices?

This is an updated version of a story that previously ran on April 28.

So if you’re looking for ways to protect yourself financially while making the most of what you have, here are some options to consider.

How does inflation affect my standard of living?

“If you’re not working, or looking for a better job, now is a great time to take advantage of the very strong job market and secure a position,” says Florida-based certified financial planner Mari Adam.

To help you in your search, here are some resume dos and don’ts to keep in mind.

Cash in on the housing boom

If you’re in doubt about selling your home, now might be the time take the plunge.
The housing market has collapsed: annual house prices rose nearly 15% in April and rents were almost 17% higher.
The mortgage interest rate is now about 2 percentage points higher than at the beginning of this year, making it much more expensive to buy a home and that may temper the question. “I would recommend anyone planning to put their home on the market to do so right away,” said Adam.

Home loans: lock fixed rates now

If you are about to buy a home or refinance one, lock in the lowest fixed rate available to you ASAP.

That said, “Don’t jump into a large purchase that isn’t right for you just because interest rates could rise. Rushing to buy a large item, such as a house or car, that doesn’t fit your budget is a recipe for trouble.” No matter what interest rates do in the future,” says Texas-based certified financial planner Lacy Rogers.

"This is not the pension I had in mind."  How Retirees Are Affected by Inflation

If you already have a floating-rate line of credit on your equity and you’ve used some of it to complete a home improvement project, ask your lender if they’re willing to set the interest rate on your outstanding balance effectively creating a fixed-rate home. equity loan, suggested Greg McBride, Bankrate.com’s chief financial analyst.

If that’s not possible, consider paying off that balance by taking out a HELOC with another lender at a lower promotional rate, McBride said.

Cover your short-term money needs

It is always a good idea to have cash to cover you in emergencies or severe market downturns. But it’s especially crucial in major events that are out of your control – including layoffs, which tend to increase during recessions.

That means setting aside enough money in cash, money market funds, or short-term fixed-income instruments to cover living expenses, emergencies, or other major anticipated expenses (eg, a down payment or tuition) for several months.

This is also recommended if you are nearing or retiring. In that case, you may want to set aside a year or more in living expenses that you would normally pay with withdrawals from your portfolio, said Rob Williams, director of financial planning, retirement income and wealth management at Charles Schwab. This should be the amount you need to supplement your regular income payments, such as Social Security or a private pension.

In addition, Williams suggests investing two to four years in lower-volatility investments, such as a short-term bond fund. This will help you cope with any market downturns and give your investments time to recover.

Credit Cards: Minimize the Bite

If you have credit cards on your credit cards — which typically have high variable interest rates — consider transferring them to a zero-rate balance transfer card that holds a zero-rate between 12 and 21 months, McBride suggested.

“That insulates you from rate hikes over the next year and a half, and it gives you a clear runway to pay off your debt once and for all,” he said. “With less debt and more savings, you can better weather rising interest rates, which is especially valuable if the economy is deteriorating.”

If you’re not switching to a zero-rate balance card, another option might be to take out a personal loan with a relatively low fixed interest rate.

In any case, the best advice is to do everything you can to pay off your credits quickly.

Rebalance your portfolio if necessary

It’s easy to say you have a high risk tolerance when the stock is rising. But you must be able to tolerate the volatility that inevitably comes with investing over time.

So watch your positions to make sure they’re still aligned with your risk tolerance for a potentially rockier road ahead.

And while you’re at it, you’ll need to rebalance your portfolio if you’ve become overweight in one area after years of stock gains. Now, for example, if you’re overweight in growth stocks, Adam suggested shifting some money into slower-growing, dividend-paying value stocks through a mutual fund.

Also check that you have at least some exposure to bonds. While inflation has resulted in the worst quarterly high-quality bond yields in 40 years, don’t count them.

“If a recession were the result of the Fed’s aggressive rate hikes to suppress inflation, bonds are likely to fare well. Recessions are generally much kinder to high-quality bonds than stocks,” Bennyhoff said.

Find out what it means to you to ‘lose’ money

If you keep money in a savings account or CD, the interest you earn is likely to be exceeded by inflation. So while you keep your principal, you lose purchasing power over time.

On the other hand, if it’s more important to keep the principal in a year or two than risk losing some of it – which can happen if you invest in stocks – that inflation-based loss may be worth it to you. , because you get what Bennyhoff calls a ‘sleep-easy return’.

But for longer-term goals, find out how comfortable you feel about taking any risk in order to achieve greater returns and prevent inflation from eroding your savings and profits.

“Over time, you’ll be better off as a person and safer if you can grow your wealth,” Adam said.

Stay calm. Do your best. Then let go

Lightning-fast news reports about higher gas and food prices or rumors of a possible world war are nerve-wracking. But don’t trade on the news. Building financial security over time requires a cool, steady hand.

“Don’t let your feelings about the economy or the markets sabotage your long-term growth. Stay invested, stay disciplined. History shows that what people – or even experts – think about the market is usually wrong. The best way to achieve your long-term goals , is just staying invested and sticking to your assignment,” Adam said.

During crisis periods of the past century, stocks tended to bounce back faster than anyone expected at the time, and on average outperformed over time.

For example, since the financial crisis hit in 2008, the S&P 500 has yielded an average of 11% per year through 2021, according to data analyzed by First Trust Advisors. The worst year in that period was 2008, when stocks fell 38%. But in most of the years that followed, the index made gains. And four of the annual gains ranged between 23% and 30%.

“If you’ve built an appropriately diversified portfolio that fits your time horizon and risk tolerance, the recent market decline is likely just a hiccup in your long-term investment plan,” Williams said.

Also remember: it is impossible to make perfect choices, since no one has perfect information.

“Gather your facts. Try to make the best decision based on those facts plus your individual goals and risk tolerance.” said Adam. Then she added, “Let go.”

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