If 2022 was a round of golf, we would officially be on the back nine.
The first half of the year has been defined by record inflation, interest rate increases and stock market volatility, and we still have six months to go! Instead of standing by while the purchasing power on your money erodes, there are steps you can take now to make the most of what’s left of 2022.
“Bear” the Volatility
The stock market saw its worst 6-month period since 19701, dropping more than 21% since the beginning of the year. The S&P 500 officially entered a bear market in June. While we may think of this as bad news, there is a silver lining. Everything is “on sale” right now when it comes to investments.
We saw a similar situation in the spring of 2020. The year started out as a bull market with early gains. Then it turned into a bear market, dropping 34% when the pandemic hit in March. But the bull came back, and the market reached new all-time highs by the end of the year. We know people who have turned their whole financial situations around by buying into the market in March, taking advantage of that sell-off and riding out the volatility.
We could see a very similar situation in 2022, and we encourage people to take part. The worst thing you can be doing is sitting on the sidelines and waiting for the right time to invest.
Save Like an Investor
While rising interest rates make it more expensive to borrow, they also create better returns for savers. However, the two are far from equal.
The Federal Reserve has raised its key interest rate three times this year, starting at effectively zero and hiking to 1.75%. Mortgage rates quickly felt the impact; the average rate for a 30-year mortgage rose above 5% this spring, the first time in over a decade. Meanwhile, savings accounts are much slower to respond. The average interest rate for a savings account is around 0.1%.
When you factor in 6% inflation, you are actually losing money in a savings account. Instead, savers can take advantage of rising rates with floating rate investments instead of fixed-rate accounts.
Stick to Your Goals
You may have entered 2022 bright-eyed and with lofty goals for your finances. Unfortunately, those goals may be further out of reach in July than they were in January. Don’t be disheartened; the markets, our economy and your financial picture will not stay this way forever.
Stick to the plans you created at the beginning of the year, even if you have to save in smaller increments because of rising prices. Doing something in this environment is better than doing nothing. And remember, any day missed is a day you cannot get back.
During times of uncertainty, your financial advisor is here to help. You go to the doctor when you’re sick; you go to the dentist when you have a toothache; and you can see a golf pro to correct your swing. Why not do the same for your finances?