4 Financial moves to make now
Strategies to consider for managing your personal finances going forward
Successfully navigating your personal finances is challenging in the best of times but figuring out how to manage your money during a pandemic can be especially difficult.
While economic conditions continue to shift, it seems that the Federal Reserve, Congress and the White House are going to do whatever it takes to avoid a prolonged recession caused by coronavirus-related lockdowns. Although we have not seen an unemployment rate this high since the Great Depression, the markets have continued to rise. These conflicting indicators are confusing at best, so it is no wonder that money-making decisions might be particularly perplexing now.
Here are some strategies to consider for managing your personal finances going forward.
Get off the sidelines
Get fully invested in stocks in your 401(k), IRA and any other taxable money you will not need for the next 10 years or more. With interest rates expected to be zero for at least the next two years, equities offer a much higher return than bonds.
If you are invested in mutual funds or exchange traded equity funds, sign up for dividend reinvestment. If the markets correct from these levels, at least you will be buying or reinvesting at lower prices – what is known as dollar cost averaging. Had you done this in March, April and even May, you would have reinvested at some very good prices. There are still some bargains in the stock market if you look hard enough. Not all stocks have participated equally in the run up since the March 23 lows.
Make that move
While the Great Recession devastated the housing market, the current economic crisis hasn’t had the same impact on residential real estate, particularly in Colorado. In fact, due to the lack of inventory and no spring selling season this year, the pent-up demand is huge. If you are thinking of selling your home, now is as good time as ever. Record low interest rates make homes even more affordable and new visitors to Colorado may decide to move here and leave expensive cities like San Francisco, Boston or New York City. Rental properties could serve as good investment opportunities too if Colorado remains a desirable place to live.
Ditch high-interest cards
With interest rates at record lows, there is absolutely no reason to be paying high interest rates on credit card debt. You should pay off these charges immediately, even if it means borrowing money from a line of credit or home equity line. There may even be opportunities to swap out of high interest rate credit cards into low interest or no interest rate credit cards. Shop around for the best deal. Trade in your old airline affinity card and opt for a cash back credit card instead so you get money back every time you spend money.
Refinance mortgage debt
As a result of the pandemic, the Federal Reserve has cut interest rates to zero and has stated that it will not raise short-term interest rates until 2022. This extremely accommodative monetary policy has caused the 10-year U.S. Treasury to drop significantly below 1%. Since home mortgage rates trade off the 10-year treasury bond, 30-year mortgage rates are hovering around 3%. If you have a mortgage rate of 4% or higher or an adjustable mortgage rate, you should refinance your current mortgage now and lock in these historically low rates at a fixed interest rate. Mortgage rates may never be lower in our lifetimes. My first mortgage in 1985 was at 13% and when I refinanced at 10%, I thought I had won the lottery. Never could I have imagined mortgage rates below 7%, and here we are at 3%.
There are always silver linings in any crisis, and it is important to recognize and appreciate this. Now is a great time to take advantage of the recent correction in the stock market and subsequent plunge in interest rates. I suspect if you capitalize on these opportunities now, you will look back on this period of time and be very thankful you paid attention to what was going on when everyone else was too scared to think about anything else but the coronavirus.