You can now expect your latest quarterly 401(k) statement from your employer showing the current value of your savings every day now, and you probably expect the inventory and fund portion of your savings to have declined in value since your last statement. Knowing that inflation is much higher than normal, interest rates are rising, and the economy may be slipping into recession, it’s not surprising that your investments will be 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 could look like as monthly income after you retire. These numbers 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 is committed to working in your best interest. That’s why you should consider Wealthramp’s free financial advisor match service. Every advisor in the Wealthramp network is thoroughly vetted. Answer a few short questions, view your advisor matches and schedule a free meeting with one or all of your matched advisors. Wealthramp will never sell your data. You won’t get pushy sales calls from them. If you’re ready to see your best advisor matches, get started now.
So what now? As the Fed tightens into a slowing economy, there is a high risk of a recession, and even a mild contraction in economic growth could last for months or years. Telltale signs of a recession include when retail sales fall, production slows, companies stop hiring, and more people lose their jobs or are laid off. As alarming as the news may seem, recession is part of the normal business cycle. Instead of reacting, now is a good time to rethink your financial plan to position yourself to prosper.
Whether you manage your finances alone or work with a trusted financial advisor to help you manage some or all of your portfolio, here are Five Important Actions You Need To Take Now to keep your finances up during tough economic times.
1) Keep your credit score high
In a period of high inflation, it costs more for everyone to borrow money, regardless of their credit score. However, those with lower credit scores will suffer even more. Lenders charge less to borrowers who have demonstrated that they will repay the loans on time as agreed. Banks use your credit score as a convenient way to see what kind of borrower you are. If you’ve shown a pattern of late payment of debt over time, lenders will be wary of lending you money. The abbreviated metric used to measure borrowing behavior is your credit score — a low score means lenders fear you won’t repay them. To account for that risk, lenders charge more to lend to questionable borrowers in the form of higher interest rates.
This is not the time to lower your credit rating. If you do need to borrow money, you want to do it at the lowest possible interest rate, which is reserved for those with a high credit score of over 700. If you keep credit card balances year after year, have you looked at the interest you pay? A typical credit card charges you more than 25% in annual interest. For example, imagine that you bought a set of summer patio furniture on sale for $10,000. If you have an outstanding $10,000 balance on your credit card and you don’t pay it off, it’s like adding $2,500 on top of what you paid for the table and chairs.
2) Maintain your cash reserves
It’s important to get to the point where you know you’ll ideally have six to 12 months of cash in an accessible account for emergencies and unexpected expenses. In a recession, that reserve fund becomes even more important in case you lose your job or a big unexpected event happens to you and your family. If you’ve had enough of a savings pillow, you’ll sleep better. The downside is that banks don’t pay much into their savings or money market accounts, but the upside is that you have immediate access to money without potentially having to sell losing stocks to raise money when the market falls. It also gives you the freedom to know that you don’t have to take out a loan if interest rates rise. It seems unfair that banks are quick to raise borrowing rates and much slower to raise rates on savings accounts, but the financial security that comes with liquid cash reserves is worth it. The best way to set aside extra dollars is to make the lifestyle choice to live below your means.
3) Invest, but don’t gamble!
Long-term inflation eats away at your savings and investment returns. When inflation is high – and we recently saw inflation hit 8.6% – it means you pay more but get nothing in return. An inflation rate of almost 9% is four times higher than the norm. And over the years, even at lower rates, inflation takes its toll. The best way to stay ahead of inflation is to stay invested in a diverse portfolio of stocks, as stocks tend to grow faster than inflation over time.
If you’re not sure how to build a diversified portfolio designed to protect and grow your money, an established financial advisor who has been independently and thoroughly vetted can help. It can be overwhelming to find a financial advisor you can trust who has the expertise to meet your financial needs and is committed to working in your best interest. That’s why you might want to consider Wealthramp’s free financial advisor match service. Every advisor in the Wealthramp network is thoroughly vetted. Answer a few short questions, view your advisor matches and schedule a free meeting with one or all of your matched advisors. Wealthramp will never sell your data. You won’t get pushy sales calls from them. If you’re ready to see your best advisor matches, get started now.
Take from the experts – investing is the tortoise, not the hare. Vanguard Group’s John Bogle said investing should be boring – investment guru Ben Stein asks what’s wrong with average? Billionaire investor Warren Buffett never gambled. Buffett made his billions by investing carefully, consistently in value. He missed the best moment to join Apple (AAPL). To this day, he is still not invested in Tesla (TSLA). He does not understand Bitcoin and does not want to learn it. In his entire investing career, he has rarely won a blockbuster. So how did he accumulate so much wealth? In addition to investing carefully, an often overlooked reason is that he has lived a very long life.
4) Find inflation hedges
Another tactic during a recession is to choose investments that act as a hedge against inflation for 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 to stocks. However, gold is a poor long-term investment. Therefore, many fiduciary financial advisors recommend hedging only about 5% to 10% of your portfolio. When you want to beat inflation, one of your best tactics is to fully diversify your portfolio. That doesn’t mean randomly choosing exchange-traded funds in different sectors. Diversification requires you to create a plan that you stick to and adjust when market indicators give you time. Your best bet is to contact a financial advisor who can review your portfolio and help you ensure it is diversified.
5) Improve your resume and improve your skills
Unemployment in the US is currently at an all-time low. Whether superficial 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 find a new job if necessary, is to make yourself as valuable as possible as an employee. If your current company offers education allowance, jump on that advantage and work toward a degree or certification that can boost your future earnings. There are also cheap or free training courses that you can pay for yourself to boost your resume. Track your job performance to turn a standard resume and cover letter into one that stands out and grabs the right attention. And stay closely connected with your professional and personal network.
Actions to take today
If you’re taking defensive measures to protect yourself and your family from a recession, decide whether to do it yourself using digital tools or partner with a rigorously vetted, paying-only fiduciary financial advisor who works only for you, not as an agent for you. a brokerage firm or insurance company. If you are nearing retirement, choose a fiduciary who has the expertise and specializes in retirement income planning. They can help you:
- Make a tax-oriented plan yourself or with their advice
- Develop an investment strategy that you can stick to over time
- Think of ways to pay off high-yield debt
- Purchase cash accounts
Finding the right financial advisor can be a challenge. Let Wealthramp help you find the right advisor to help you with your personal financial needs and situation.
Pam Krueger is a recognized investor advocacy, award-winning personal finance journalist, and founder and CEO of Wealthramp, a free advisor matching platform that connects people with strictly audited, paid-only financial advisors. She is also the creator and co-host of MoneyTrack, which aired on PBS from 2005-2019, and the Friends Talk Money podcast for PBS Next Avenue, which is currently in its 7th season.