By Brandon Miller, CFP–
When I was a kid, we’d gather around the big table for our extended family Thanksgivings. Older relatives would inevitably lament “back in my day” while comparing the prices of yesteryear to the cost of the bird and fixings. They’d similarly bemoan the prices of whatever was on the little ones’ Christmas lists that year. These gripes were followed, of course, by their stories of walking back from some mythical store—in the snow and uphill both ways. Or, they were sitting astride Mom in the station wagon’s front bench seat with no seat belts.
Times change but some things are constant, like taxes and rising prices. And now we have the highest inflation in decades sending prices even higher. It seems like a gloomy end of the year with higher interest rates hitting the economy. Purchasing power is decreasing, mortgage rates are spiking, and credit card debt is becoming more expensive, triggering recession fears.
However, inflationary environments don’t have to be awful. In fact, they can help you make more money. The key is reframing what rising rates can do for you.
Here are four ways that inflation can help rather than hurt your financial strategies.
1. Use online high-yield savings accounts.
Do you have savings sitting in a low-yield wasteland doing nothing for you? Then move that money into an online high-yield savings account to help you keep up with inflation. Right now, you can make 2.5–3% annual percentage yields on these accounts, versus around 0.2% for the average savings account. Plus, the money is liquid. So, if you want to take advantage of another financial opportunity at some point, you have that cash available to you—and growing along the way.
2. Invest in long-term CDs.
Right now, you can get long-term CDs at 4%—these are some of the highest rates we’ve seen in a decade. When you open a CD, you keep your rate for as long as you have the CD. This means that directing some of your money into a CD could mean that you enjoy today’s high returns for months or years, even if rates drop down the road. Further, you can use a ladder when investing to help increase your liquidity. Just remember: Once you invest in a CD, you can’t access it until the term ends, which can work well for someone who doesn’t need the money now.
3. Invest in bonds.
Bonds are debt securities you can purchase from a borrower like corporations and governments. Treasury bills, municipal bonds, and other similar debt securities are starting to pay attractive yields right now due to rising interest rates. Further, when interest rates rise, the cost of bonds drops, making them an affordable way to boost your investments.
4. Explore annuities.
For many, “annuity” is as evil a word as “Karen.” But not everyone who looks like a Karen is one—and neither are annuities inherently bad. In fact, with interest rates rising, both fixed and variable annuities can be an attractive option. When you buy an annuity, you lock in interest rates, which affects the amount of your monthly payment once you withdraw the income. So, when interest rates are high, you also will create bigger monthly payments than you otherwise would in lower interest-rate environments.
While being safe when investing is important, being too safe can cost you in the long run. The more your money sits there idling, the less value it holds for you tomorrow.
By finding opportunities that higher rates open up, you have a prime way to keep your money working for you. But you’re still going to have to endure those “back in the day” stories at family gatherings.
Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
Money Matters
Published on December 1, 2022
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