There is so much talk about the Fed raising interest rates.  Expectations are that the Federal Reserve will raise the cost of borrowing between banks 2 times in 2019.  Other than incoherent tweets originating from our nation’s capital, what are you supposed to make of this news?  Let me break it down in simple language that even the tweeter-in-chief can understand.

Rising Interest Rates = Very good for savers.

If you are a person who wants/needs a substantial amount of money in a safe place, rising interest rates are great.  Some money markets are paying over 2% interest!  Also, if you plan to buy an income annuity, start a pension payout, or buy new bonds, you will benefit from higher interest rates.

Rising Interest Rates = Very bad for spenders.

If you are carrying credit card debt, expect your minimum payments to go up.  If you are looking to buy a house with a new mortgage, your payments could be higher.  And, if you are wanting a business loan, those costs will go up.

Rising Interest Rates = Who Knows?

For the stock market.  There is no way to know how the stock market will be affected long-term by rising interest rates.  Some say the Fed raising rates is a sign the economy is healthy and can absorb higher borrowing costs.  That should make the stock market happy.  Others say more expensive borrowing costs will slow capital expenditures and be a drag on the market.

Only time will tell, but interest rates are a small part of what drives overall stock market returns.  As with all hysterical headlines, I encourage you to focus on what you can control – your saving and spending – and not worry about the rest.

Do you have fears that keep you from moving forward with your life goals?   I do!  I have a fear of asking businesses for donations and sponsorships for fundraisers.  This stresses me out since I find myself serving on many non-profit boards where that is the principal activity.

What to do to get over my fear?  I don’t know yet, but in the meantime, let me tell you how to get over your fears of investing.

Fear that I might lose money

Yes, some days/weeks/months/years, you WILL lose money in your investments.  This is the very underpinning of taking risks and being rewarded for it.  If there is no risk (investing in CDs), there is no reward (2% interest on your 2 year CD).

Bust through the fear

Remember how long you have to be an investor.  It’s the rest of your life!  If you are 60 years old, it’s possible you will live to 95.  That’s a 35-year investment time horizon for most of your money.  That’s 3 to 5 more recessions.  Are you going to freak out during every single one?  What a waste of energy.  Just embrace down years as a natural part of life and concentrate on things you do have control over.  Like your flossing habits or vegetable intake.

Fear that I will ask dumb questions

Guess what?  No one is born with some innate knowledge of how to invest money.  It takes time, study, practice.  Financial advisors LOVE answering questions because it makes us think we are smarter than we are.

Bust through the fear

Would you leave your doctor’s office after a scary diagnosis without asking questions?  No!  Because it’s important that you understand what your options are.  Who cares what the doctor thinks, it’s your understanding that is paramount.  Think of your financial/accounting/legal advisor the same way.  They owe it to you to make the information they give clear and actionable.

Fear that I am trusting the wrong person

Let’s face it, trusting someone with your money is scary.  How do you know they aren’t a Bernie Madoff disguised as a nice guy?  Actually, Bernie Madoff WAS disguised as a nice guy.

Bust through the fear

First, you can do some research.  FINRA’s broker check tool allows you to look up your potential advisor and see if there have been a bunch of lawsuits or judgements or disciplinary problems in that person’s past.  Second, you do have a gut instinct, don’t you?  Trust it!  If something feels uncomfortable, or you don’t feel listened to, or you feel pushed into an investment product that you don’t want, just walk away.  There are plenty more advisers out there who could be a better fit.

I hope this blog helps you move past fear and into action on creating your best financial plan.  And if you know some ways to get past my fear of soliciting donations, please pass along those tips!

Give yourself the gift of financial sanity going into the new year with these 3 easy financial tips:

Stop watching any sort of financial TV. 

MSNBC, Bloomberg, CNBC – they are all designed to sow fear and uncertainty in you so that they may sell more advertising.  Their very programming advocates short term outlooks, when most investors are looking 30 years out.  Financial magazines that help you plan for the long-term (Money, AARP, Kiplinger’s) are a better way to use your financial education time.

Make sure you are investing at least 15% of your own money into your retirement account. 

This will have two advantages:  Building a nest egg for future security AND getting you used to living off a smaller income.

Talk to your kids about money.

From saving a bit of allowance each week to smartly navigating the college tuition jungle, to saying, “we can’t afford that now,” helping your children understand money at a young age it will keep them from being a drain on your resources as you enter your golden years.

Happy New Year!

Since the stock market volatility of October, my financial planner friends and I have been pretty crabby.  “Well, of course,” you say, “down stock markets are terrible for investment advisors.”

Nope, that’s not the problem at all.  Getting mad at the stock market for going down is like being angry at a toddler whose nap you skipped to run errands and is now having a meltdown at the grocery store.  It’s the grown-up’s reaction that needs to be managed.

Who is the grocery store grown-up in the down stock market analogy?  Hopefully it’s the investor.  Handling the temporary fit in a calm manner and going about her business. But some days I have my doubts.

The stock market goes down some years/months/days/hours/weeks.  It MUST go down occasionally in order for it to go up.  Down stock markets are healthy, regular, and to be expected for good overall economic health.

If there is no risk, there is no reward.

If you don’t experience losses sometimes, there is no reason to expect gains.  You’ve heard it all before.  You tell your financial advisor that you are ready to take risk and get growth in your investments.  And yet..

You still are tempted to make the same bonehead moves every time the stock market experiences a down day.  You call your advisor and ask to move all your money to cash when the US stock market goes down by 3%.  When, of course, your advisor didn’t have you in all US stocks to begin with because he forced you into a diversified portfolio even though you WANTED to be all in US stocks 3 months ago because that’s what has performed the best the last 2 years.  Geesh!  You see where this is going?

It’s not the market, it’s the investor that is the problem.

So, please, for the sake of your investment advisor’s sanity, remember just two factoids:

In the twenty years preceding 12/31/2015, the S&P 500 averaged 9.85%/year compared to the average investor return of 5.19%/year. *  This is because investors tend to put more money into investments when they are high and pull money out when markets are low.  Buying high and selling low is no way to make money – ask any store owner.

You never know when to get back in after you’ve bailed out.  Missing a few great days can lead to sub-par performance over decades.  For example, a hypothetical (because it NEVER happens) investor remained invested in the S&P 500 Index from 1998 to 2017 (5,036 trading days) would have earned a 7.20% annualized return. Miss the 5 best performing days and the annual return shrank to 5.02%. Miss the 20 days best days, the returns were cut down to just 1.15%. If the 40 best-performing days were missed, an investment in the S&P 500 turned negative, with $10,000 dropping to $5,670. **

If you’d like a professional to help you craft a diversified portfolio you can live with for the long run, with occasional rebalancing, e-mail me to set up an appointment.

Just not right now.  I’m in a bad mood.

*Source:  https://www.thebalance.com/why-average-investors-earn-below-average-market-returns-2388519

**Sourcehttps://www.ifa.com/12steps/step4/missing_the_best_and_worst_days/