Twitter Live Recap: Investing, Interest Rates, and Government Relief Measures
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Another week, another full list of questions about finances. Whether someone’s got a question around the latest financial legislation or just wants to talk retirement, SoFi is here to help out.
SoFi Financial Planner Brian Walsh joined Twitter followers Thursday afternoon to answer burning questions around the Fed’s new interest rates and share real-time financial guidance to those curious about how times of financial volatility might impact retirement savings.
Becoming an Informed Investor
The coronavirus pandemic has undoubtedly changed the day to day lives of many, but it’s also reversed the nearly decade-long bull market, leading to a dramatic drop in the market. This time of uncertainty and volatility has many investors questioning their strategy.
Is Now a Good Time to Start Investing?
This type of market behavior certainly causes anxiety among investors, others asked about its opportunity value. Is now a good time to jump into the market as a first-time investor?
Whether or not a first-time investor chooses to make lemonade out of the lemon market is entirely up to them. Before a potential investor dives headfirst into the market, they should consider the following:
• Emergency savings. Many recommend at least three months of expenses in liquid savings to start.
• Debt. High-interest debt, like credit cards or personal loans, should be taken care of before investing.
Just because the market is dropping doesn’t mean a person should drop all other financial obligations and start investing.
If an investor has their foundation down, they can start thinking about mid and long term savings goals in the market.
For beginners, that often means thinking about long term savings goals. Walsh suggested a savings goal of 15-20% of a person’s income towards retirement accounts, such as an IRA, Roth, or 401(k).
How Can Investors Stay Informed?
Other questions came in about staying informed as an investor. Where can a person look for market data to make informed decisions on what to invest in?
“It’s a balancing act,” explained Walsh. On one hand, investors shouldn’t turn a blind eye to the economy and news, but they also can’t just sit in front of a dual monitor all day studying market data.
Instead, curious investors can pull from multiple data sources. Consider following a few economic and market experts on Twitter, or paging through The Economist and Wall Street Journal newsletters.
Investing all at Once, or Little by Little?
When it comes to investing a chunk of money in the market, a SoFi user wanted to know which approach is better; putting it all in at once, or a little bit over time?
This one’s all about what’ll make the investor sleep better at night. As Walsh explained, while research shows that throwing everything in the market at once typically makes more than dolling it out over time, it doesn’t account for human emotion.
Some investors might feel stressed out by dropping a bunch of cash into the market at once, and that’s okay. As long as an investor has a plan in place to get that money invested, they should stick the schedule that’s least stressful for them.
Does Automated Investing Make Sense in a Time of Recession?
This has more to with personal preference than the market, said Walsh. Generally, there are three ways to invest:
• Hands-off. Tools like SoFi Automated Investing will invest in a variety of diversified stocks without much input from the investor.
• DIY. An investor manually picks and chooses stocks for their portfolio.
• 50/50. A hybrid of the above two options.
The decision is up to the investor, depending on how comfortable they feel investing, their level of expertise, and their free time to spend monitoring investments.
What to Do About Interest Rates
The Federal Reserve’s decision to cut rates again last week raised lots of questions. One user wanted to know how the rate cut would impact student loans. Oftentimes, people expect a 1:1 ratio when it comes to the Fed rate and loan rates, said Walsh.
It’s more complex than that, but the two are tied. Generally, if the Fed drops rates, so too will other loans. Student loans, mortgages, and even car loan borrowers shouldn’t expect the same drop in rates as the Fed, but they will see an impact.
Another question cropped up around the Fed rate reduction and Annual Percentage Yield (APY), specifically on SoFi Money® cash management accounts. Similar to other institutions, SoFi Money reduced APY rates. However, that’s not a reason to reconsider savings, suggested Walsh.
APY is just one benefit of a savings account, but the liquidity and easy access is just as important. Having the right amount of money in a safety net, with no restrictions, is important for anyone’s financial wellbeing.
As the rates dropped to a recent low, people also wanted to know how long it’ll stay that way. Any idea when the rate will rise again?
That’s a tricky question, that depends on the global economy. All we really can know for certain is what’s happening now, Walsh explained. On a personal level, financial decisions can’t just be made on interest rates alone.
People have to consider their goals and financial foundation, in addition to interest rates, to make the best decision for themselves. It’s easy to get excited when interest rates are low, but it doesn’t change a person’s finances entirely.
How Has this Week’s Legislation Impacted Finances?
This week’s seen a lot of legislation flying around in reaction to the COVID pandemic. Most notably, questions came up around federal student loans and changes to tax day.
Potential Changes to Student Loan Payments
On March 20, the US government temporarily suspended payments on federal student loans, for a minimum of 60 days. Now, the coronavirus relief bill is proposing to suspend federal student loan payments until September 2020.
At the time of the chat, Walsh reminded viewers that this isn’t a certainty. The bill has not been passed by the House or the president. The policy is an indication of things that might come, but there are more steps before it becomes law. As the bill and legislation develop, readers can always tune-in to the SoFi Blog to learn about what these policies could mean for someone’s finances.
How Does the Tax Filing Date Change Affect Financial Planning?
Additionally, this week brought news of the Treasury Department and the IRS’ decision to extend filings to July 15, 2020. People wanted to know how that changed their options when it comes to personal finance.
If someone owes money to the federal government, they’ve got an additional 3-month window to save up for the payment. On the flip side, if a person’s expecting a refund, they’ll likely want to file on or before the original deadline.
The extended deadline also gives taxpayers the opportunity to up their 2019 contributions. There are now three more months to contribute to 2019 IRA or HSA accounts.
Do You Have Questions?
Have questions for a SoFi Financial Planner. Join SoFi on Twitter Live next Thursday for another financial chat, or make an appointment for a one-on-one chat with a SoFi Financial Planner—offered at no cost to SoFi members.
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