How to protect your money from inflation, rising rates and falling stock prices

“If you’re not working or looking for a better position, now would be a good time to take advantage of the very strong job market and lock in a position,” said Mari Adam, a Florida-based certified financial planner.

Take advantage of the real estate boom

Home loans: Lock in fixed rates now

If you’re about to buy a home or refinance one, get the lowest fixed rate available to you as soon as possible.

That said, “don’t make a big purchase that isn’t right for you just because interest rates might go up. your budget is in trouble no matter how interest rates move in the future,” said Texas-based Certified Financial Planner Lacy Rogers.

If you already have an adjustable rate home equity line of credit and used part of it to complete a home improvement project, ask your lender if they would be willing to fix the rate on your outstanding balance, creating a home fixed-rate equity loan, suggested Greg McBride, chief financial analyst at Bankrate.com.

If that’s not possible, consider paying off that balance by taking out a HELOC from another lender at a lower promotional rate, McBride said.

Cover your short-term cash needs

Having liquid assets to cover you in case of an emergency or a severe market downturn is always a good idea. But it’s especially crucial when dealing with big events beyond your control, including layoffs, which typically increase during recessions.

This means having enough money set aside in cash, money market funds, or short-term fixed-income instruments to cover several months of living expenses, emergencies, or any large anticipated expenses (e.g., down payment). or tuition).

This is also advisable if you are near or retired. In that case, you might want to set aside a year or more of living expenses than you would normally pay with withdrawals from your wallet, said Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab. This should be the amount you would need to supplement your fixed income payments, such as Social Security or a private pension.

Additionally, Williams suggests having two to four years in low-volatility investments like a short-term bond fund. This will help you ride out market downturns and give your investments time to recover.

Credit cards: minimize the bite

If you have balances on your credit cards — which typically have high variable interest rates — consider transferring them to a zero-rate balance transfer card that locks in a zero rate for 12 to 21 months, McBride suggested. .

“It insulates you from rate hikes over the next year and a half, and it gives you a clear track to pay off your debt once and for all,” he said. “Less debt and more savings will make you more resilient to rising interest rates, which is especially helpful if the economy deteriorates.”

If you’re not transferring to a zero-rate balance card, another option might be to get a relatively low fixed-rate personal loan.

In any case, the best advice is to do everything possible to pay off your balances quickly.

Rebalance your portfolio if necessary

It’s easy to tell you have a high tolerance for risk when stocks are skyrocketing. But you have to be able to handle the volatility that inevitably accompanies investing over time.

So review your holdings to make sure they still match your risk tolerance for a potentially tougher road.

And while you’re at it, rebalance your portfolio if, after years of stock market gains, you find yourself overweight in a particular area. For example, if you’re now too heavily weighted in growth stocks, Adam suggested maybe reallocating some money into slower-growing, dividend-paying value stocks through a mutual fund. .

Also check that you have at least some bond exposure. While inflation drove the worst quarterly return for high-quality bonds in 40 years, don’t count them.

“If a recession were to result from the Fed aggressively raising interest rates to rein in inflation, bonds should do well. Recessions tend to be much more favorable to high-quality bonds than to stocks,” Bennyhoff said.

Find out what it means to you to “lose” money

If you keep money in a savings account or CD, the interest you earn is likely exceeded by inflation. So, while you preserve your capital, you lose purchasing power over time.

Again, if preserving capital over a year or two is more important than risking losing some of it — which can happen when you invest in stocks — that inflation-based loss may worth it because you get what Bennyhoff calls an “easy return to sleep.”

But for longer-term goals, consider how comfortable you feel about taking some risk to get a better return and prevent inflation from eating away at your savings and earnings.

“Over time, you are better off and more secure as a person if you can grow your wealth,” Adam said.

Stay calm. Do your best. So ‘let go’

High-speed reports of rising gas and food prices or talk of a possible world war are disconcerting. But don’t trade on the news. Building financial security over time requires a cold, steady hand.

“Don’t let your feelings about the economy or the markets sabotage your long-term growth. Stay invested, stay disciplined. History shows that what people – or even experts – think about the market is usually wrong. The best way to achieve your long-term goals is to simply stay invested and stick to your allocation,” Adam said.

During the crisis periods of the last century, stocks generally rebounded faster than expected at the time and performed well on average over time.

For example, since the financial crisis hit in 2008, the S&P 500 has returned 11% per year on average through 2021, according to data analyzed by First Trust Advisors. The worst year in this period was 2008, when stocks fell 38%. But in most of the years that followed, the index posted a gain. And four of his annual earnings ranged between 23% and 30%.

“If you’ve built a well-diversified portfolio that matches your time horizon and risk tolerance, it’s likely that the recent market decline will just be a failure in your long-term investment plan,” he said. said Williams.

Also remember that it is impossible to make perfect choices since no one has perfect information.

“Gather your facts. Try to make the best decision based on those facts as well as your individual goals and risk tolerance.” said Adam. Then, she added, “Let go.”