On any given day, you can expect your latest quarterly 401(k) statement from your employer to show the current value of your lifetime savings, and you probably anticipate that the stock and fund portion of your savings has lost value since the your last statement Knowing that inflation is much higher than normal, interest rates are rising, and the economy may be heading into recession, it’s no surprise that your investments are taking a hit. But for the first time, in addition to your current 401(k) balance, the companies are showing projections that illustrate what your overall savings might look like as monthly income after retirement. These numbers may be lower than I thought.
Find a financial advisor you can trust who has the expertise you need and is committed to working in your best interest can be overwhelming. This is why you should consider Wealthramp’s free financial advisor comparison service. All advisors in the Wealthramp network are rigorously vetted. Answer a few quick questions, review your advisor matches, and schedule a free meeting with any or all of your advisor matches. Wealthramp will never sell your data. You won’t get pushy sales calls from them. If you’re ready to see your best advisors, start now.
so what happens As the Fed tightens in a slowing economy, there is a high risk of recession, and even a slight contraction in economic growth can last for months or years. The telltale signs of a recession, among other things, are when retail sales are falling, manufacturing is slowing, businesses are stopping hiring, and more people are losing their jobs or being laid off. As alarming as the news may sound, recession is part of the normal economic cycle. Instead of reacting, this is a good time to review your financial plan to position yourself to thrive.
Whether you manage your finances on your own or work with a trusted financial advisor to help manage some or all of your portfolio, here five important actions you should take now to keep your finances fighting cutbacks 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, people with lower credit scores will suffer even more. Lenders charge less to borrowers who have proven they will repay their loans on time, as agreed. Banks use your credit score as a useful way to see what kind of borrower you are. If you’ve shown a pattern of late debt payments over time, lenders will be wary of lending you money. The shorthand metric used to measure lending behavior is your credit score; a default means lenders are worried you won’t pay them back. To account for this risk, lenders charge more to lend to uncertain borrowers in the form of higher interest rates.
This is not the time to allow your credit rating to slip. If you need to borrow money, you’ll want to do so at the lowest possible interest rate, which is reserved for those with a high credit score above 700. If you have year-over-year credit card balances, you’ve looked at the interest rate you are paying? A typical credit card charges you more than 25% in annual interest. For example, imagine you bought a set of summer patio furniture on sale for $10,000. If you have a $10,000 balance on your credit cards and you don’t pay it off, that’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 ideally have six to twelve months of cash ready in an accessible account for emergencies and unexpected expenses. In a recession, this reserve fund becomes even more essential if you lose your job or if a major unexpected event happens to you and your family. If you have enough savings pillow, you will sleep better. The downside is that banks don’t pay much for your savings or money market accounts, but the upside is that you’ll be able to access the money immediately without having to potentially sell losing stocks to raise money when the market is down. It also gives you the freedom of knowing you won’t have to take out a loan when 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 cash is to choose the lifestyle to live within your means.
3) Invest, but don’t gamble
Long-term inflation affects your savings and investment returns. When inflation is high, and we’ve recently seen inflation hit 8.6%, that means you’re paying more but getting nothing more in return. An inflation rate close to 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 because over time, stocks tend to grow faster than inflation.
If you’re not sure how to build a diversified portfolio designed to protect and grow your money, that’s where an established, independent and thoroughly reviewed I can help. 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 can be overwhelming. That’s why you might want to consider Wealthramp’s free financial advisor comparison service. All advisors in the Wealthramp network are rigorously vetted. Answer a few quick questions, review your advisor matches, and schedule a free meeting with any or all of your advisor matches. Wealthramp will never sell your data. You won’t get pushy sales calls from them. If you’re ready to see your best advisors, start now.
Take it from the experts: Investing is the tortoise, not the hare. Vanguard Group’s John Bogle Said Investing Is Supposed To Be Boring: Investing Guru Ben Stein Wonders What About Averages? – Billionaire investor Warren Buffett never played. Buffett made his billions through careful and consistent value investing. He missed the best time to get into Apple (AAPL). As of today, he is still not invested in Tesla (TSLA). He doesn’t understand Bitcoin and doesn’t want to learn. In his entire investing career, he has rarely had a blockbuster win. So how did he amass so much wealth? In addition to investing carefully, an often overlooked reason is that he has lived a very long life.
4) Find inflation coverage
Another tactic during a recession is to choose investments that act as inflation hedges over long periods. Gold and commodities are 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, which is why many fiduciary financial advisors we recommend hedging only 5% to 10% of your portfolio. When you’re looking to beat inflation, one of your best tactics is to fully diversify your portfolio. This does not mean randomly choosing funds traded in different sectors. Diversification it requires you to create a plan that you stick to and revise when the market indicators show you its timing. Your best bet is to connect with a financial advisor who can look at your portfolio and help you make sure it’s diversified.
5) Revise your resume and improve your skills
Right now, unemployment is at an all-time low in the U.S. Whether it’s superficial or deep, recessions often lead companies to lay off employees. The best way to protect yourself from losing your job and to ensure that you can find a new job if necessary is to make yourself as valuable an employee as possible. If your current company offers education reimbursement, use that benefit and work toward 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 a record of your accomplishments at work to turn a standard resume and cover letter into one that will help you stand out and get the attention you deserve. And stay closely connected to your professional and personal network.
Actions to take today
As you take defensive steps to protect yourself and your family from the recession, decide whether to do so with digital tools or partner with a rigorously reviewed, a commission-only fiduciary financial advisor working only for you, not as an agent for a brokerage firm or insurance company. If you are nearing retirement, choose a trustee who has the experience and expertise retirement income planning. They can help you:
make one plan focused on taxes on your own or with their advice. Develop an investment strategy that you can stick to over time. Design ways to pay off high interest debt. Get accounts in cash.
Finding the right financial advisor can be a challenge. To leave Ramp to wealth help you find the right advisor to help you with your personal financial needs and situation.
Pam Krueger is a renowned investor advocate, award-winning personal finance journalist and founder and the CEO of Wealthramp, a free advisor-matching platform that connects people with rigorously vetted fee-only financial advisors. She is also the creator and co-host of MoneyTrack, which aired on PBS from 2005 to 2019, and the Friends Talk Money podcast for PBS Next Avenue currently in its seventh season.