4 major movements of money in an uncertain economy, according to advisors

By most measures, the new year is off to a good start. However, economists and business leaders alike anticipate that there are more challenging times ahead for the market and the economy.

Year-to-date, the S&P 500 and Dow Jones Industrial Average are up about 4% and more than 2%, respectively, while the Nasdaq Composite is up 5.9%.

Until now inflation It is still an ongoing problem. the Consumer price index for the month of December Prices showed a 0.1% calm from the previous month but were still 6.5% higher than a year ago.

“The easing of inflation pressures is obvious, but that doesn’t mean the Fed’s job is done,” said Greg McBride, chief financial analyst at Bankrate.com. “There is still a long way to go to reach an inflation rate of 2%.”

Although the Fed’s battle with inflation leads to success, it will come at the cost of a hard landing for the economy, according to A survey of financial chiefs by CNBC. It was the economists Expect a recession for months, and most of them see it starting in the first part of the year.

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To make the most of the current climate, advisors are recommending some major financial moves in the coming year.

Here are the top four strategies for protecting yourself from stock market volatility, rising interest rates, and geopolitical risk — not to mention fears that this is about to happen. Recession.

1. Pay off high-interest debt

“This is a great time to pay off some outstanding high interest loans,” said David Peters, a financial advisor and certified public accountant with CFO Capital Management in Richmond, Virginia.

Credit card ratesin particular, now more than 19% on average – its highest ever. Annual percentage rates will also continue to rise, as the Fed continues to raise its benchmark interest rate.

“For a long time we’ve been spoiled in the markets,” Peters said. In some cases, it made more sense to take advantage of cheap credit to make a larger purchase, rather than withdrawing money from a savings or investment account. Now, “we need to reverse our mindset.”

Consider this: “If you have a loan at 6% interest and you pay the principal, it’s almost like getting a 6% return on your money in the markets,” he says.

If you currently have credit card debt, “get one of these zero percent or low-rate balance transfer offers,” McBride advises. He said cards that offer 15, 18 and even 21 interest-free months on transferred balances are still widely available.

2. Put your money to work

Once you’ve paid off the debt, Peters recommends setting aside some money in a separate savings account for emergency expenses.

“Online savings accounts can be a way to make money in times when other investments may not pay back so well,” he said.

However, even though some high-yield online savings accounts now pay out more than 3.6%to me DepositAccounts.comeven this will not keep pace with the rising cost of living.

Ted Jenkin, CEO of Atlanta-based Oxygen Financial and a member of the CNBC Advisory Boardrecommend to buy Short-term Treasury bonds are relatively risk-free and arrange them to ensure you get the best prices, strategy which entails holding the bonds until the end of their term.

“It’s not a huge return but you won’t lose your money,” he said.

Another option is to buy FEMA I bondwhich are inflation-protected and virtually risk-free assets.

The bonds currently pay 6.89% annual interest on new purchases through April, down from 9.62% annual rate Offered from May to October 2022.

The downside is that you can’t redeem a one-year I-bond, and you’ll pay the last three months’ interest if it was cashed out five years ago.

3. Increasing pension contributions

Once you’ve paid off high-interest credit card debt and set some money aside, “putting more into retirement accounts now can be a great move,” said Peters.

You can postpone $22,500 in a 401(k) for 2023down from the $20,500 cap in 2022. The new allowance is in “Secure 2.0“It will increase retirement plan access and open up more opportunities for saving for the future, including making it easier for employers to make contributions to 401(k) plans on behalf of fee-paying employees,” Peters said. Student debt.

Even if you balance contributions with short term goalsHe added that you should still contribute enough to fully benefit from the company’s matches, which is like getting an extra return on your investment.

4. Buy a dip

“Investors willing to take additional risk might consider ‘buying the dip’ by looking at sectors that have had particular difficulty and could now be undervalued,” said certified financial planner Brian Kuderna, founder of Kuderna Financial Team in Shrewsbury, NJ. , and author of the forthcoming book What Do I Do With My Money?

“Technology has caught the chin, Amazon has lost half of its market value, and if there’s a lot of pullback, there could be an opportunity,” he said.

Kuderna recommends Average cost in dollars, which helps to smooth out price fluctuations in the market. Investing in specific time periods can also help you over time Avoid emotional investment decisions.

However, a long-term horizon is critical to this type of approach, Kuderna added, which means being prepared to leave that money alone.

“The general advice I have is not to watch the market too closely, that’s when people start to get agitated and that’s when mistakes happen.”

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