5 Important Investment Tips for Trying Political Times
Regardless of your opinion of President Trump, his administration, and the infighting in Washington, times like these present real financial challenges to Americans. Are we in for higher inflation or another recession? What will happen to interest rates? Will unemployment grow or shrink?
Everyone is feeling this uncertainty, particularly young people who are making investment decisions for the first time. Here are a few ways to take control of your money, and avoid making some common money mistakes.
Mistake #1: Allowing Uncertainty to Paralyze You
Making financial decisions when there are so many unknown variables is unsettling—we get it. It can be tempting to do nothing rather than risk making a mistake. You know you should start saving and investing for retirement, your first home, and your other goals. But is this the right time? What if the market goes down?
The same questions always apply in every market and political climate. You can never be certain of investing success—especially over the short run. But if you never start, you might be overlooking an important tool in building your nest egg. Don’t let fear control your future.
Time is your best friend when investing for long-term goals. The earlier you start, the longer your money has to grow and the less market ups and downs are likely to hurt you. The longer you put off saving for retirement, the more likely you are to end up with less money when retirement comes.
Mistake #2: Believing the Hype
You may hear from politicians and pundits across the spectrum that the end is upon us, and the financial world we live in is about to be obliterated.
But don’t buy into doomsday scenarios. To take control of your finances, your first order of business is to realize everything runs in cycles and things are rarely as good—or as bad—as they might seem.
Mistake #3: Panic Selling
The financial world is a rocky one—recessions come and go. Markets can drop—but they eventually recover. There were big market slides in 1987, 2000 – 2003, and 2008. These were very scary, but many people who panicked and sold everything in these difficult times missed the recovery and locked in their losses.
Those aren’t the only times the market dropped. According to Capital Research and Management Company, the stock market has a correction of 10% or more in most years (1900-2016). These corrections typically last 3 to 4 months, so investors should not be alarmed by double-digit drops. They are a normal part of market activity.
The bottom line? The economy and market will both go up and down. Market dips may be an opportunity to invest more—not panic and sell.
Mistake #4: Failing To Stay Current
Economic news may seem boring, but to make good financial decisions, you need to be aware of what is really going on in the economy. Pundits make their living painting the situation as either terrible or wonderful. But the real news is facts and data.
SoFi publishes a regular Market Commentary with their Chief Economist’s analysis of the economy and markets, with information about how they approach investing SoFi Invest portfolios. There are many other good sources of real, fact-based economic and market news—The Economist magazine and Wall Street Journal are good places to start.
Mistake #5: Ignoring Opportunity
Use this information to take advantage of current opportunities. For example, many economists agree that interest rates are still historically low and they will eventually need to rise. One takeaway is to lock in loans for longer periods of time at today’s low rates. Another is to consider the risks of investing in long-term bonds at today’s low rates. Stick with bonds maturing in three years or less for that part of your portfolio. You’ll get less interest now, but your bonds are less likely to lose value if interest rates pop up.
It’s Your Money—Take Charge!
You’re in control when it comes to your financial life. Set clear goals and take positive steps to achieve them. And if you’re concerned, use your worries to your advantage. For example:
– Are you concerned about the future? Harness that anxiety and put more money away for your retirement. Make sure you continue to track your progress. Consult SoFi’s retirement calculator to see where you are at.
– Is the stock market correcting? Use it as an opportunity to buy.
– Afraid we’re heading into another recession? Tap into that energy by saving 3-6 months’ expenses in an emergency fund. Then take a class to learn skills that make you more valuable to your employer.
Don’t allow yourself to get frozen like a deer in the headlights. Stay informed about the economy and don’t let fear or panic stop you from saving and investing for your future. If you are carrying expensive personal loans or student debt, try to refinance at lower rates before they move up. There are many great resources available—especially through SoFi—to help you learn more and take charge of your financial situation.
It’s important to understand grasping the bigger financial picture, no matter the climate. Talk to a SoFi Invest team member today for help with determining your financial goals and a strategy to reach them.
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