Who Is The Fed Helping & Hurting By Lowering Interest Rates
THE BIG THING I WANT YOU TO KNOW:
It’s looking like interest rates are likely to drop sometime this year and, depending on where you are, this may help or hurt you. The best thing you can do to prepare is look for 1) ways you can take advantage of these lower rates, or 2) how to build security around them.
The purpose of talking about the Fed and the impending interest rate drop isn’t in effort to try and predict what they will do, but to more importantly understand what they actually do and how that filters down to YOUR situation.
P.S. My thought on dropping interest rates is that it’s more about political expediency than actually being helpful. The economy appears to be healthy, so if we drop rates now what happens when the economy needs a boost? (More on that here: “Will Cutting Interest Rates Now Hurt You in the Long Run?”)
Whatever your political opinion or what you think the FED may or may not do, if they do cut rates, it will impact you.
It’s so critical not to confuse your politics with your finances. You may be staunchly opposed to lowering interest rates, but you would be a fool not to take advantage of it!
Financial planning is about figuring out how all the different aspects of your financial world align to help you reach your dreams. You can’t control what Washington or the Fed chooses to do, but you can be proactive in responding to it.
“It’s so critical not to confuse your politics with your finances.”
Let’s look at the practical personal impact lowering interest rates could be having on YOU.
Low Interest Rates Helps Homeowners - It’s Time to take advantage of these rates
Now is a great time to refinance your home on a fixed-rate mortgage. Consider this a gift if you are in the housing market.
I’m a massive fan of fixed-rate mortgages, and if you ask me, the longer the better especially with rates this low! However, your situation is different than the person next to you, and sometimes an adjustable-rate mortgage is a perfect fit.
Some of you may have bought into an adjustable-rate mortgage because rates have been so low. As interest rates go up, it’s really attractive to start thinking about adjustable-rate mortgages because they start low, but inevitably increase dramatically. If you were lured into an ARM and rates drop overall, you may want to consider refinancing into a fixed-rate mortgage.
KEEP YOUR EYES UP and be proactive looking for a healthy opportunity that may emerge from interest rates dropping!
But like always… there are two sides to every coin! While lower rates may be a win for homeowners those at or nearing retirement will be impacted in very different ways.
Low Interest Rates May Hurt Those Nearing Retirement - It’s time to protect your future
If you are nearing retirement, you’ve been waiting for interest rates to go UP. There’s all this talk about a rate drop being better for everyone, but folks that are hoping for “safe money” and fixed income to give a better return (AKA those nearing retirement) actually want rates to rise.
When interest rates drop, that means safe money stays incredibly low in terms of giving you any sort of yield or return. This is problematic.
Now, you have to be creative to figure out how to have safety as you approach retirement.
The answer to create a security is not (please hear me on this one) moving your money into aggressive stock funds! A lot of people think if your money is in the S&P 500 it’s pretty safe. No!!! The risk you are taking is more important than any return you could get this year.
It’s a strange and unique time to be retiring because you’re the first generation EVER to retire on 401k, and safe money is now paying nothing (which will go to worse than nothing if interest rates drop). You need to look into all the options for YOUR situation: how much income you need and how much risk you can take. You need someone to look at your situation objectively and give you a customized solution maybe now more than ever.
“When interest rates drop, that means safe money stays incredibly low in terms of giving you any sort of yield or return.”
You need a plan that works for YOU, to figure out the right blend of safe money and fixed money.
And if you really don’t know what to do here, if you feel confused about this strange time, we’re here to sit down and go over all of your options. Income planning is the focus of good retirement planning and the focus of good financial planning.
This is so important to understand as you approach the retirement you’ve worked so hard for…
We’re Here To Give Regular People A Financial Plan That Works
The whole reason I started this company was so that we could provide objective, fee-based (read “affordable”) financial planning for regular people that want to go after their dreams.
How is everything you’re doing pointing towards having stable, reliable income so that you can enjoy retirement without being worried about what’s going on around you?
Whether the rates fall or rise, having a customized plan sets you up for success in the future, so you’re ready no matter what happens.
Take note of something good in your life today.