How to Manage Rising Rates, Inflation and Market Volatility
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Inflation, rising interest rates and market volatility worry many Americans.
Consumer prices rose 8.5% in March from a year ago, costing US households $327 more per month, according to an estimate from Moody’s.
To combat rising inflation, the Federal Reserve began raising interest rates. The central bank has already raised rates by 0.25% in March and has indicated that it will likely implement a 0.5% hike in May. Meanwhile, 30-year fixed mortgage rates have already climbed to over 5%. That’s up from 3.37% on Jan. 5, according to Mortgage News Daily.
All of this is putting pressure on the housing market, where prices are still high and inventories are low, and on the stock market, which was knocked out last month and remains volatile.
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“It’s going to be a much trickier and tougher year when it comes to the economy and people’s finances,” said Mark Zandi, chief economist at Moody’s Analytics.
With that in mind, here’s how to handle the difficult economic situation that many Americans are currently facing.
Stock market fluctuations can make you want to run for the hills.
However, you need to focus on the long term. Any changes you make to this plan during volatile times can set you back for years, said financial adviser Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.
“The best thing you can do is control your own internals: how you react to stress, the lessons you learn along your investing journey, and becoming battle-hardened so you can become a long-term investor. “, did he declare.
“Remember that time in market is more important than market timing.”
All the cash you’ll need in the short term should be kept out of inventory, so you don’t have to sell at a loss when you want to access it, Goldberg said.
Plus, if you’re nearing retirement, you might also want to be a little more cautious, Zandi said.
This is because he has low expectations for the market over the next couple of years.
“Market asset prices soared because of the very, very low inflation, low rate environment that we found ourselves in,” he said.
“We can’t expect to see the kind of returns we made to the previous world we were in.”
Customers pushing shopping carts shop at a supermarket on April 12, 2022 in San Mateo County, California.
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Zandi predicted inflation may moderate after peaking around May. However, inflation expectations are migrating upwards.
“There are many different ways to measure expectations,” Zandi said. “They’re all saying that people are starting to believe that this high inflation is here to stay for a long time.
“If that’s the case, it will come true more and more,” he added.
To handle higher prices, first look at your budget.
“You can make changes or alter your budget if you have the ability,” said Misty Lynch, certified financial planner at Sound View Financial Advisors, based in Walpole, Mass.
“If you need to, cut back or change your habits a bit to get groceries down from $175 to $150, like buying less meat.”
Many Americans have already reduced their dining out, according to a recent CNBC + Acorns Invest in You survey. If inflation persists, they plan to reduce dining out, driving and vacations, according to the survey conducted by Momentive.
If there are big bills coming up, like a trip or a wedding, you can save money by planning ahead.
“Last minute things are going to be very expensive and there’s just a shortage of a lot of different things,” Lynch said.
Rising interest rates
Federal Reserve interest rate hikes impact the interest you pay on things like credit cards and a home equity line of credit.
This means that already high credit card rates will go up. Currently, the average rate is over 16%, according to CreditCards.com.
Therefore, focus on using the extra money you can save to pay off your debt. Lynch suggests starting with the cards with the highest interest rates. Others prefer to pay those with the highest balances first.
If you decide to transfer your balance to a zero-rate card, make sure you don’t continue to accumulate debt, or you’ll be back where you started since the zero-rate is only locked in for a certain period of time.