By most measures, the new year has started well. However, economists and business leaders are predicting tougher times for the market and the economy.
Year-to-date, the S&P 500 and Dow Jones Industrial Average are up around 4% and more than 2%, respectively, while the Nasdaq Composite is up 5.9%.
Still inflation remains a persistent problem. The december consumer price index showed that prices were down 0.1% from the previous month, but were still 6.5% higher than a year ago.
“The easing of inflationary pressures is evident, but that doesn’t mean the Federal Reserve’s job is done,” said Greg McBride, chief financial analyst at Bankrate.com. “There is still a long way to go to get to 2% inflation.”
Even if the Fed’s battle against inflation succeeds, it will come at the cost of a hard landing for the economy, according to a survey of CFOs conducted by CNBC. Economists have been predict a recession for months, and most see it starting early in the year.
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To make the most of the current climate, advisors recommend a few key currency moves over the coming year.
Here are their top four strategies for protecting you from stock market volatility, rising interest rates, and geopolitical risks — not to mention fears of an impending crisis. recession.
1. Pay off high-interest debt
“Now is a great time to pay off some of these higher interest rate loans,” said David Peters, financial advisor and certified public accountant at CFO Capital Management in Richmond, Va.
Credit card ratesin particular, now exceed 19% on average — an absolute record. These annual percentage rates will also continue to climb, as the Fed continues to raise its benchmark rate.
“For so long we’ve been pretty spoiled in the markets,” Peters said. In some cases, it made financial sense to use cheap credit for a larger purchase, rather than withdrawing money from a savings or investment account. Now, “we have to reverse our way of thinking”.
Consider this: “If you have a loan with a 6% interest rate and you pay off the loan principal, that’s almost like getting a 6% return on your money in the markets,” he said. declared.
If you currently have credit card debt, “grab one of the zero-rate or low-rate balance transfer offers,” McBride advised. Cards offering 15, 18 and even 21 months interest-free on transferred balances are still widely available, he said.
2. Make your money work
Once you’ve paid off your debts, Peters recommends setting aside money in a separate savings account to emergency expenses.
“Online savings accounts can be a way to make money in a time when other investments aren’t doing well,” he said.
However, although some of the highest-paying online savings accounts now pay more than 3.6%according to DepositAccounts.comeven that will not be enough to keep up with the rising cost of living.
Ted Jenkin, CEO of Atlanta-based Oxygen Financial and member of CNBC Advisory Boardrecommend the purchase relatively risk-free short-term treasury bonds and stagger them to ensure you get the best rates, a strategy which involves holding bonds until the end of their term.
“It’s not a huge return but you’re not going to lose your money,” he said.
Another option is to buy I’m readingwhich are inflation-protected and virtually risk-free assets.
I bonds currently pay 6.89% annual interest on new purchases through April, down from the 9.62% annual rate offered from May to October 2022.
The downside is that you can’t redeem the I bonds for a year and you’ll pay the last three months in interest if redeemed before five years.
3. Increase pension contributions
Once you’ve paid off your high-interest credit card debt and put some money aside, “putting more into your retirement accounts right now can be a great decision,” Peters said. .
You can differ $22,500 in your 401(k) for 2023up from the $20,500 limit in 2022. The new provisions of “Secure 2.0will further expand access to retirement plans and open up more opportunities to save in the future, Peters said, including making it easier for employers to make contributions to 401(k) plans on behalf of employees who pay student debt.
Even if you balance the contributions with short term goalsyou still need to contribute enough to get the full benefit of corporate matches, he added, which comes down to getting an extra return on your investment.
4. Buy the dip
“Investors willing to take on additional risk might consider ‘buying the dip’ by looking at sectors that have suffered particularly badly and may now be undervalued,” certified financial planner Bryan Kuderna, founder of Kuderna Financial Team, told Shrewsbury, NJ, and the author of the upcoming book, “What Should I Do With My Money?”
“Tech took it on the chin, Amazon lost half of its market capitalization, if there was too much pullback there could be an opportunity,” he said.
Kuderna recommends purchase average, which smooths out price fluctuations in the market. Investing in set intervals over time can also help avoid emotional investment decisions.
However, a long-term horizon is key to this kind of approach, Kuderna added, which means being prepared to leave that money alone.
“The general advice I have is don’t watch the market too closely, that’s when people start to get emotional and that’s when mistakes happen.”