Be proactive about saving
Nearly 300 years ago, Benjamin Franklin coined the phrase “an ounce of prevention is worth a pound of cure.” The man who helped draft the Declaration of Independence was warning his fellow Philadelphians that it was better to try and prevent fires than to struggle to put them out.
In this inflationary period, financial advisors take a cue from Franklin and advise their clients to prepare for something worse in the future.
However, even as businesses and the average consumer are being told to prepare, some financial experts still don't think we're headed for a recession, at least not yet. The hot economy is slowing down, but the possibility of a recession is in the hands of the federal government, they say.
“Obviously, the big risk is what the Fed decides to do. If they choose to ignore all the forward-looking and real-time data and go by their own historical data they could put us into a recession,” Noah Blackstein, vice president and senior portfolio manager at Dynamic Funds, an Ontario-based investment management firm, said in a live interview on CNBC May 20.
Blackstein thinks we’re past peak inflation and prices are starting to come down. He noted that bubble that was the used car market sems to be popping.
“They've (the Fed) certainly done that in the past. So, a Fed mistake is always a concern. But the data certainly shows that inflation problems are waning,” Blackstein added.
Experts at the Wells Fargo Investment Institute think the U.S. is headed for a “mild recession.” In a weekly perspective on the current market issued on May 18, Scott Wren, senior global market strategist, wrote that this mild recession would likely occur at the end of this year or at the beginning of 2023.
According to the Wells Fargo report, signs of a slowing economy are present, including slumping consumer confidence, small business optimism, and mortgage rates and applications. The purchasing power of consumers can't keep up with inflation, small businesses can't find workers, and input costs rise at every level, squeezing profit margins. Housing and rental prices have soared. These trends will not be easy to reverse in the near term.
Be Proactive About Saving
No matter the environment, Faron Daugs, founder and chief executive officer at Illinois-based Harrison Wallace Financial Group, is working to make his clients proactive about saving. Daugs’ most significant concern during this time is whether a client's investments are keeping up with or outpacing the inflation rate.
“This is evident right now between rising gas prices and high costs on grocery shelves. In this situation, your client's purchasing power diminishes year-over-year because inflation is higher than your overall investment return,” Daugs told Advisors Magazine.
Daugs, a certified financial planner has several tips for his clients. First, he advises them to think long-term about their investments and understand the risk and reward tradeoff for longer-term investments. Financial planners will tell you that it is good to know your risk tolerance level as an investor and to understand that the stock market, by nature, is volatile. It moves up and down over the short-term.
Second, he suggests to clients if applicable consolidate any student loan debt to a lower interest rate fixed option, according to Daugs. Student loan payments for the nation’s 42.9 million federal loan borrowers are suspended until August 31, 2022. Unless there is a policy change, borrowers must resume outstanding student loan debt payments that stood at $1.59 trillion in the first quarter of 2022, according to the Quarterly Report on Household Debt and Credit. The report is issued each quarter by the Federal Reserve Bank of New York's Center for Microeconomic Data.
Another way to be proactive about saving is to lock in a fixed 30-year or 15-year rate on their mortgage. The national average of a 30-year fixed rate is currently 5.48%, and a 15-year rate is currently 4.74%, according to Bankrate.com.
Other areas clients can improve their finances at this time include eliminating interest and late fees by paying off monthly credit card balances and canceling those forgotten subscriptions, according to Daugs.
Canceling subscriptions will do much to improve your bottom line. Consumers spend an average of $273 per month or over $3,200 per year on subscription services, according to a 2021 survey conducted by Illinois-based West Monroe, a business and technology consulting firm.
