3 financial strategies to prepare for the shifting rate cycle — one is a ‘no brainer,’ advisor says
3 financial strategies to prepare for the shifting rate cycle — one is a ‘no brainer,’ advisor says

Shoppers stroll with gadgets throughout Black Friday offers at a Target retailer in Westbury, New York, U.S., November 24, 2023. 

Shannon Stapleton | Reuters

After greater than a yr of coping with fast inflation, shoppers have turn into numb to larger costs. But as inflation cools, consultants say there are strategies that may make it easier to climate present situations and prepare for a shift in rates of interest.

The October client value index increased 3.2% on an annual foundation, in accordance to the Bureau of Labor Statistics’ month-to-month inflation report, down from a Covid-era peak of 9.1% in June 2022. The private consumption expenditures value index — the Federal Reserve’s most well-liked gauge — additionally shows signs of inflation cooling.

CNBC spoke with a number of financial advisors about how shoppers could make the most of their cash as the market anticipates the finish of the Fed curiosity rate hike cycle and inflation declines nearer to its goal rate of two%. The first place to look: your financial savings account.

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“The no brainer, and fairly frankly, best factor to do is take that cash that you’ve got sitting in money and just be sure you’re getting the most from it,” mentioned licensed financial planner Stacy Francis, the president and CEO of Francis Financial in New York City. Francis is additionally a member of CNBC’s FA Council.

Here’s how one can profit from that transfer and others.

Get your money working for you

The Fed could begin to cut interest rates in 2024 after 18 months of hikes. So it is vital to benefit from financial merchandise that profit from excessive rates of interest when you can, mentioned CFP Marguerita Cheng, the CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. Cheng is additionally a member of CNBC’s FA Council.

Certificates of deposit, for instance, are providing larger yields than high-yield saving accounts. While your financial savings account rate can change at any time, CDs allow you to lock in a rate for a set interval — which could be useful now forward of any Fed rate cuts subsequent yr.

With CD ladders, buyers can divide equal quantities of money throughout a vary of CDs that every have a completely different maturity date. When the CDs with shorter phrases expire, these proceeds could be invested into CDs with a longer maturity.

“If you begin locking in some larger charges now [as CD ladders allow for], that may be a good factor,” mentioned Cathy Curtis, a CFP and the founder and CEO of Curtis Financial Planning in Oakland, California. Curtis is additionally a member of CNBC’s FA Council.

Money market funds, that are mutual funds which might be often invested in short-term, lower-credit-risk debt, may appear as if a “no brainer” method to outpace inflation, given many funds are at present paying effectively over 5%, Francis mentioned.

Add ‘engines’ to your funding portfolio

Consumers have been 'as resilient as they could be,' says former Walmart U.S. CEO Bill Simon

Making the most of your workplace retirement plan can even function an engine. Take benefit of “free cash” in the type of the employer match, Francis mentioned — ensure you’re contributing sufficient to get the full match.

“Lots of people are leaving free cash on the sidewalk once they stroll by,” Francis mentioned.

Revisit spending habits and enormous bills

While the worst of inflation could also be behind the U.S. economic system, shoppers nonetheless really feel its pinch when (*3*) and paying common bills. That’s as a result of inflation is declining progressively, which suggests costs are nonetheless rising however at a slower tempo. (Although, a few merchandise have seen prices fall yr over yr.)

Re-evaluating spending habits to see the place it can save you cash is all the time sensible, particularly throughout the vacation season, consultants mentioned. Walmart chief financial officer John David Rainey recently told CNBC shoppers are “leaning closely” into main promotions as they watch their spending and search for offers. 

Adjust your procuring habits by visiting grocery shops in your space that carry the finest offers, Curtis mentioned.

Francis’ household is specializing in shopping for experiences — resembling a cooking class — quite than items for the holidays, on condition that experiences haven’t seen as a lot inflation.

If your price range is strained, it might additionally nonetheless value assessing extra important modifications. Some folks might take into account downsizing their home or moving to a more affordable area, Francis mentioned.

“Of all the issues, I see what individuals are most hesitant to do is downsizing. But I may also inform you that it is one of the strikes that can provide you the most the most peace of thoughts,” she mentioned.

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