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How To Invest $10,000

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Have you recently found yourself with $10,000 burning a hole in your pocket? While $10K might not seem like a life-changing sum of money, if invested properly over time it could grow to become a very tidy nest egg.

Whether it comes from a sudden windfall, an inheritance or a winning lottery ticket, let’s look at the best ways to invest $10,000.

Open an IRA

Bolstering your retirement savings is a great use of $10,000. If you don’t have one already, consider opening and funding an individual retirement account (IRA).

An IRA is your go-to choice if you don’t have a 401(k) plan at work. It’s also a great option if you want better investment options than you get with your workplace retirement plan. The best IRA accounts let you pick and choose from a very broad range of asset classes, giving you additional flexibility.

Another strategy to consider is a Roth IRA. Contributing to a traditional IRA gives you an upfront tax deduction, while a Roth IRA provides you with tax-free withdrawals in retirement. Plus, the rules let you make tax-free withdrawals before you’ve even reached retirement age.

In 2022, you can contribute up to $6,000 per year into an IRA, or $7,000 per year if you are 50 or older. Maxing out your contributions can help keep you on track to reach your retirement goals—and possibly leave you with a few thousand bucks to invest in some of the ideas below..

Invest in Mutual Funds and ETFs

Mutual funds and exchange-traded funds (ETFs) help make investing easy, and the best funds charge minimal fees.

These pooled investment vehicles own portfolios of stocks or bonds, and aim to achieve clearly defined goals. Things like investing in a specific market sector, generating cash flow, tracking the price of a commodity like gold or emulating the performance of a market index like the S&P 500.

Regular investors can buy shares of any number of funds. When you invest, each fund’s management team handles the hard work of keeping the portfolio on track. In exchange for this convenience, funds charge an annual expense ratio, which is expressed as a percentage of your total investment.

You can buy mutual funds and ETFs using a brokerage account or an IRA. Vanguard is widely recognized as a leading provider of both types of fund. Check out our listings of the best Vanguard ETFs and the best Vanguard mutual funds for more insight.

Build a Stock Portfolio

Buying individual stocks is riskier than investing in mutual funds and ETFs. But for self-directed investors who want to take the time to learn about public companies and do the research, this could be a great way to invest $10,000.

As you consider your options and research stocks, remember the importance of diversification In a word, don’t put all your eggs in one basket. No matter how much you might like a certain stock or company, you should never, ever buy $10,000 worth of a single stock.

Instead, build an equity portfolio with a mix of different individual stocks, preferably ones that offset each other’s risks. For example, if you invest in an oil company, which should do well if the price of oil goes up, also purchase an airline stock, which should do well if the price of oil goes down.

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Invest in Bonds

If you’re looking to generate income, bonds could be a useful investment for $10,000.

When you buy bonds, you’re lending money to a company or government. You agree to hold onto the bond for a period of time, and at the end this term the bond issuer will give you your money back. In the interim, the issuer pays you interest at a set rate on a periodic basis.

Remember, it’s not impossible to lose money investing in bonds. If you want to sell your bond before the end of its term, you could find a buyer in the secondary market, but you might have to accept a lower price than you paid depending on market conditions.

In addition, if the bond issuer ran into financial trouble, they could miss payments or even default on returning your principal investment.

Bonds with higher interest rates—so-called junk bonds—tend to be riskier. Like any investment, there’s always a tradeoff between greater risks and higher rewards. You can buy bonds through most brokerage platforms that offer stocks.

Buy Real Estate with REITs

In today’s hot real estate market, $10,000 won’t take you very far when it comes to buying property. But there’s more than one way to invest in real estate.

Try real estate investment trusts (REITs), for example, which are a type of publicly traded company that can give you exposure to many different types of property.

Most REITs concentrate on one type of real estate—like commercial property or residential real estate—although some own a variety of different types of property. To qualify as a REIT, companies must distribute at least 90% of their taxable income to shareholders, which also makes REITs a good way to generate income.

Much like regular stocks, REITs are highly liquid. That makes it easy to cash out your investment and move your money elsewhere. Contrast that with owning physical real estate, where selling is a long, expensive process.

Prepare for healthcare costs with an HSA

A health savings account (HSA) lets you save and invest for future healthcare costs. Just remember, you can only open and fund an HSA if you have a high-deductible healthcare plan.

You can contribute up to $3,650 to an HSA in 2022. In return, you get three valuable tax benefits.

First, you can deduct your contributions from your income tax. Once money is in your account, you can invest it in different mutual funds and exchange-traded funds (ETFs), depending on your HSA provider.

Second, you delay income taxes on your gains so long as they stay in the account.

Third, when you spend money on healthcare costs, you withdraw money from an HSA tax-free. That’s right, you never owe capital gains taxes if you use withdrawals for qualified medical expenses.

If you don’t need the money for healthcare, you can also use an HSA for whatever you want once you turn 65. You’ll owe income tax on the withdrawals, but there are no other penalty fees.

Considering Crypto? Be Cautious

Until very recently, cryptocurrency was the hot new investment that everyone wanted a piece of. But if you’ve been following the news, you probably already know that crypto has seen something of a fall from grace—thanks in part to massive market volatility.

Even before recent market events, however, crypto had been seeing spectacular gains and stomach-churning losses. Given the uncertainty and high amount of risk involved in crypto, it would probably be best to look somewhere else besides cryptocurrency for places to invest $10,000.

However, if you’re dead set on investing in Bitcoin or Ethereum, make sure it’s money you can afford to lose. In addition, consider making crypto only a very small part of your overall portfolio, no more than 5%. For more crypto investment ideas, check out our list of the top cryptocurrencies.

Focus on the long-term

Investing is a long game. No matter which assets you choose to buy with your nest egg, your investment performance will see both gains and losses over the years. And that’s to be expected—your job is to remain focused on the future.

If you can manage to earn a 10% return on your investment every year for 30 years, your $10,000 could grow to as much as $174,000—all without contributing another penny on top of your original investment.

That’s the magic of compound interest. On the other hand, if you kept $10,000 in cash, in 30 years all you will have is $10,000. And after the impact of inflation, the purchasing power of your $10,000 will be much less than it is today.

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The Fed Rate Hike Is 75 Basis Points

Friday’s disastrous Consumer Price Index (CPI) report has put investors, analysts and especially the Federal Reserve on notice. The latest Fed rate hike is the highest in nearly 30 years. The repercussions of such a move will be both significant and long-lasting.

Friday’s May CPI report largely confirmed what many Americans already knew: Prices are rising — fast. Across the most substantial index categories, energy and food jumped by unprecedented margins.

The energy index increased 3.9% month over month, while soaring 34.6% from last year. This came as an unwelcome surprise to investors, given that energy prices actually fell 2.9% in April. Indeed, inflation actually eased mildly across the board in April, only adding to the shock of the recent figures.

Within the energy index, fuel oil prices experienced a record-high leap, rising 106.7% from last year. This is the largest increase in the history of the index, dated back to 1935. Meanwhile, the electricity index is up 12% from last May, the most significant jump since August 2006.

In the face of overzealous inflation, the U.S. central bank responded in kind.

75 Basis-Point Fed Rate Hike Comes Amid Recession Fears

The CPI report put added pressure on the Fed to take even more aggressive action to lower prices. Some analysts and investors, including Mad Money’s Jim Cramer, have been calling on the central bank to increase rates by 75 basis points and ramp up its quantitative tightening (QT) process. The last time the Fed increased rates by 75 basis points was November 1994.

With that said, it would be a gross misrepresentation of investor sentiment to pretend everyone is universally on board with higher interest rates and accelerated bond selloffs. The issue with stringent monetary policy is its effect on production. Higher interest rates put a strain on highly leveraged companies, which are dependent on low lending rates to keep their loan payments in check. This is largely what’s behind this year’s tech and growth stock slump compared to other sectors.

Bond sales also come at the expense of economic prosperity. The most immediate effect of the Fed’s QT initiative is rising Treasury yields. When yields are up, investors will often opt for the safer, guaranteed returns of government debt rather than investing in the comparably risky stock market. This only reduces the outflows of cash in the market, hurting businesses dependent on investors.

According to experts at Forbes, a recession is declared when “a nation’s economy experiences negative gross domestic product (GDP), rising unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”

Should the Fed be a bit too aggressive, it could easily set the stage for a wider downturn.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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How Much Gold Is Too Much?


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Worried about the Fed’s biggest rate hike since 1994? Here

In a matter of months, it’s become more expensive to carry a credit card balance, a car loan or a mortgage as the Federal Reserve’s interest rate hikes have seeped into borrowing costs.

It’s tough medicine that central bankers hope will break the fever of hot inflation — and no one expects the doses to stop any time soon.

Federal Reserve Chairman Jerome Powell and the other members on a key committee announced another increase in the federal funds rate, a touchstone rate all sorts of lenders use to inform their own interest rates.

It started with a 25 basis point increase in March, after rates were near zero to address the pandemic’s early financial shock waves. Then the Fed added another a 50 basis point increase in May. Now comes the single biggest rate hike since 1994.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Powell said in his prepared remarks at the start of Wednesday’s press conference. “From the perspective of today,
either a 50 or 75 basis point increase seems most likely at our next meeting.” But the Fed will take the data as it comes, he added.

Going into Wednesday’s meeting, the big question was whether the Fed would opt for another 50 basis point increase, a 75 basis point climb, or maybe even more.

The chance of 75 basis point increase became the Wall Street scuttle on the heels of inflation data showing consumer prices increasing faster than expected in May.

The Dow Jones Industrial Average, DJIA, -0.13% the S&P 500 SPX, +0.22% and the Nasdaq Composite COMP, +1.43% were clinging to positive territory Friday after the Fed’s rate hike on Wednesday.

On Main Street, these numbers matter for people’s wallets. That’s because they translate into the borrowing costs a person incurs when they use a credit card, buy a car or a home.

Some transactions, like securing a mortgage, aren’t directly influenced by the Fed. But it’s all rate sensitive. And it’s all happening at a time when consumers are getting squeezed by high prices on everything from eggs to airfares as talk of a potential future recession isn’t going away.

Here’s a look at how much Americans’ borrowing costs have increased already and how to be ready for the next rate increase — all while shoring up your finances for whatever financial uncertainty the future holds.

Got credit card debt? Pay it quickly because balances are going to get more costly

Americans had well over $800 billion in outstanding credit card debt during 2022’s first quarter, according to the Federal Reserve Bank of New York. Though that was a $15 billion quarter-to-quarter drop as people paid off their holiday spending sprees, it’s a collective balance that was up $71 billion from 2021’s first quarter.

The first quarter numbers run through March, so they did not reflect the rate hikes taking hold yet. But credit card interest rates are tightly linked to Fed rates and Matt Schulz, chief credit analyst at LendingTree, says he is seeing the initial impacts.

In May, the annual percentage rate (APR) on new credit card offers was 19.90%, up from 19.68% in April and 19.62% in March, according to LendingTree research.

But how much extra borrowing costs does that mean for someone carrying a balance? The most recent Fed data shows consumers who didn’t completely pay their credit card bill each month were facing a 16.17% APR as of February. Supposing a $5,000 balance and $250 monthly payments, that’s $781 in interest paid over the life of the loan, according to Schulz.

Now layer on the two rate hikes that have happened. That’s $826 — $45 extra bucks – in interest over the life of the loan, Schulz said. Add 75 more basis points and the person is paying $872 in interest over time, he said. That’s $91 extra in overall interest that a person is paying compared to February.

“The increases haven’t necessarily rocked too many people’s world,” he said. But if rate hikes of at least 50 basis points keep coming “then people will definitely feel them.”

That’s why it’s important to pay off balances as soon as possible now, or even take steps like asking a credit card issuer for a lower APR, Schulz said.

Some strain is showing: 11.1% of people in a recurring New York Fed survey said there was a chance they might not be able to pay their minimum debt payments over the next three months.

Think hard about big purchases — but do this if you’re going ahead

Serious about getting a car or a home? Lock in the rate as soon as possible, experts have said. In the near future, those numbers are just going to go up.

Auto loans and mortgages don’t have the direct tie to Fed rate hikes that credit cards do, but the rates are influenced by the benchmark rate and the lending environment it creates.

The numbers tell the tale. The current rate on a five-year loan for a new car is 4.53%, according to Bankrate. It was 4.32% around a month ago and 4.22% two months ago, the site said.

There’s a lot that goes into an individual’s actual borrowing costs, said Dawit Kebede, senior economist at the Credit Union National Association, an organization representing the country’s credit unions.

Still, Kebede said, “If we compare the national average interest rate for prime borrowers of a 60-month new auto loan between now and mid-March, consumers will pay extra $677 dollars in interest over the life of the loan.”

May retail sales numbers released Wednesday ahead of the Fed meeting showed a decline for the first time in five months. That’s largely due to softer numbers on car sales, according to the data.

There are also signs the white-hot housing market is cooling. But that doesn’t mean mortgage rates are. Freddie Mac FMCC, +0.93% said a 30-year fixed rate mortgage was 5.23% for the week ending June 9. That’s nearly double the 2.96% rate at the same time a year ago.

In fact, rates on a 30-year fixed-rate mortgage averaged 5.78% for the week ending June 16, Freddie Mac said a day after the Fed announcement. That 55-basis point pop from 5.23% to 5.78% was the biggest one-week increase since 1987, said Sam Khater, Freddie Mac’s chief economist. (One basis point is equal to one hundredth of a percentage point.)

The rising rates add up to heftier monthly mortgage bills. Suppose there’s a $350,000 house, a 20% down payment and a 30-year fixed mortgage with a 5.23% rate. The owners would currently pay $1,542 monthly, according to Zillow Z, +1.70% researchers. That’s compared to the $973 they would have paid a year ago, Zillow said.

Here’s another scenario that might cause someone to act quick — or just try waiting it out. At the end of last year, a 30-year fixed rate mortgage was 3.11%, according to Jacob Channel, LendingTree’s senior economist. A $300,000 loan at that rate would cost $1,283 a month. At 5.23%, that monthly payment is $1,653, Channel said.

A mortgage rate climb to 6% could effectively bar 18 million households from qualifying for a $400,000 mortgage, according to one estimate.

Build a cash cushion using savings accounts with increasingly generous rates

In a time of rising rates and anxiety over potential economic slowdowns, an ounce of silver lining is that savings account yields go up. So the interest payment award becomes a little sweeter on the good idea of socking away cash for a rainy day.

And there could be rain, some say. In fact, there’s a “hurricane” out there of unknown strength, according to J.P. Morgan JPM, -0.35% CEO Jamie Dimon.

The annual percentage yield (APY) for an online savings account increased to 0.73% in May, up from 0.54% in April and 0.50% in March, according to Ken Tumin, DepositAccounts.com’s founder and editor.

There are signs Americans need all the help and extra bits of cash they can get when it comes to saving in the face of inflation. Seven in 10 people said they needed to dip into their savings to afford rising costs. Meanwhile, personal savings rates are down from 6% at the start of the year and they stand at the lowest levels since September 2008, according to the U.S. Department of Commerce’s Bureau of Economic Analysis.

MarketWatch reporter Aarthi Swaminathan contributed to this report.

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What the Fed’s interest rate hike means for you

If you are a person living in the United States right now, you are probably at least medium worried about the economy. From inflation to the stock market, a lot about money feels pretty lousy. The good news: The Federal Reserve is taking action to try to bring down inflation and get the economy back to whatever normal is. The bad news: The action it’s taking isn’t going to immediately make everything better, and in the shorter term, it could make things feel worse.

“Getting inflation lower is usually painful because the Fed mainly has in its policy toolbox tools that make things even less affordable because the Fed’s policy toolbox is geared toward cooling demand,” said Gregory Daco, chief economist at EY-Parthenon. “If the Fed manages to cool demand, then there will be less price pressures, but cooling demand entails essentially making things more expensive.”

To put it more plainly, the idea is to tamp down consumer spending and slow business expansion by increasing costs in other areas (namely, borrowing and loans). The Fed is trying to get you, for now, to stop buying so much stuff.

On Wednesday, the Federal Reserve raised interest rates by three-quarters of a percentage point, its biggest increase in 28 years. The Fed was initially expected to raise rates by slightly less, but amid the May consumer price index coming in hot and consumer expectations for inflation rising, it acted more aggressively than anticipated. This marks the Fed’s third interest rate hike this year.

The Fed is trying to get you, for now, to stop buying so much stuff

The hope is that, eventually, the Fed’s moves will bring down prices that people have definitely noticed creeping up all around them. But they will have shorter-term implications as well. Higher interest rates mean consumers should expect the cost of their credit card debt, mortgages, and car loans, among other items, to go up. The cost of borrowing for businesses will increase, too, and companies are likely to slow down on investments and hiring. The stock market has for weeks been reflecting some anxieties over the Fed as well, as higher interest rates cut into valuations and profits.

The forest it’s hard to see for the trees is a more balanced economy on the other side, but some of the trees are pretty thorny.

“Rates have already gone up, we already are in a transition phase where the economy is slowing down. The pieces are being put in place for a rebalancing of demand and supply, but it doesn’t happen overnight,” said Brian Bethune, a financial economist at Boston College. “It’s usually a bumpy ride.”

What the Fed is trying to do

The Fed’s line for a while was that inflation would be transitory: Once some of the kinks in the economy, such as supply chain crunches, were worked out, it would begin to fade on its own. But in recent months, the Fed has taken a more assertive stance. Powell has made a hawkish pivot, acknowledging inflation is “much too high” and indicating he’s dedicated to getting it down.

The Fed has three main tools at its disposal to try to gain control of the situation, Daco explained. The first is forward guidance, as in, communication, meaning talking to the public and saying what its intentions are in terms of monetary policy. Basically, if the Fed says it’s going to take control of the situation, the public — hopefully — believes it will. The second tool is raising the federal funds rate — the interest rate banks charge other banks — which will trickle out across the economy across interest rates and make it more expensive to borrow. (With Wednesday’s hike, the federal funds rate is 1.5 to 1.75 percent, and officials expect it to be above 3 percent by the end of the year.) The third is balance sheet normalization, which the Fed is just undertaking. It is starting to unload some assets, such as Treasuries and mortgage-backed securities, which should tighten financial conditions, though it will take some time.

Combined, this is intended to deter spending and lead to less money sloshing around in the economy overall. There are wide-ranging effects.

“When the Fed tightens monetary policy, that has a direct effect on equity prices, on long-term interest rates, on corporate bond spreads, on volatility, on the value of the dollar, on a number of financial measures,” Daco said.

Companies become more reluctant to invest and hire as credit becomes more expensive, the cost of equity increases, and the environment becomes more volatile. Declining markets have a negative impact on consumer moods, which also affects spending. There’s an intended chilling effect across the economy — one officials hope will not lead to a recession, though there are no guarantees. The Fed is walking a tightrope in trying to get from an accommodative, easy-money scenario to conditions that are normalized and tightened — without disrupting the economy too much.

This all is guaranteed to cause some short-term disruptions and problems, but in the long run, it’s all supposed to be worth it.

“We have to endure the short-term pain in the economy in order to get inflation back under control,” said Tara Sinclair, a senior fellow at the Indeed Hiring Lab. She compared the Fed hiking interest rates and tightening monetary policy to a medical treatment that might require patients to undergo something painful in order to have longer-term health. “Then, going forward, we can have a much more stable environment where we know prices are going to be growing about 2 percent per year, we have more certainty about that, we have a better sense of demand and supply coming together. That’s a better working environment for the economy as a whole, and businesses want that kind of certainty.”

If the Fed were to not increase interest rates and get inflation expectations in check, the risk is that prices would continue to spiral upward. Workers will also ask for higher wages, companies will raise prices to pay those wages, and it becomes a sort of cycle of doom. The central bank’s task now is to stop that from happening and to try to keep high inflation from becoming entrenched.

What this all means for you

What the Fed’s interest rate hike Wednesday means, as well as what it does going forward (basically, how fast it moves and how much), for different people depends on their position in the economy. If you’re a saver, this is not a bad deal for you. If you are looking to buy a house, yeesh.

In recent years, interest rates have been so low there’s been very little incentive to save. When rates go up, savers get higher interest rates and can make more money. “Conservative savers that have their money in the bank or bonds or whatever and stayed away from risky things have been paid nothing,” Bethune said.

If you’re a saver, this is not a bad deal for you. If you are looking to buy a house, yeesh.

For borrowers, the situation is quite the opposite. Mortgages have already shot up, with the 30-year fixed mortgage rate hitting 6.28 percent this week, an increase from 5.5 percent last week and well above the average of 3.25 percent in January.

Car loans will become more expensive, as will credit card debt.

“For credit cards, it’s going to show up pretty quickly, and it will impact not just things you buy in the future but your current balances, too,” said Matt Schulz, chief credit analyst at Lending Tree. Usually, when the Fed raises rates, credit cards’ APRs go up by about the same amount within a billing cycle or two, he said. “Generally, these individual rate hikes aren’t enough to really rock anybody’s world financially. The danger is when you have a lot of them in a short period of time, they add up pretty quickly and can be pretty impactful.”

Companies are likely to slow down on expansion and hiring, which we’ve already seen in some arenas, such as the tech sector. Depending on how aggressive the Fed is going forward, the economy could very well see an uptick in unemployment and more layoffs. (That said, firms may be a little more reluctant to lay off employees given how hard it was to re-hire during the pandemic.) Anxious companies reluctant to hire could just make it harder to find a new job.

If you’ve got money in the stock market, whether you’re day trading with Robinhood or just investing through your 401(k), things are already looking a little rough. In the long term, stocks generally go up, and most experts would advise you to hold on. Markets could continue to be rocky for a while, though how the market will react to any single piece of news — or, really, why it does anything — is hard to predict.

This is just not going to be very fun for a while

I would like to tell you that there are a million things you can do to completely insulate yourself from some of the pain that’s ahead, but then I would be lying, which I generally try not to do. So instead I will just say this: This sucks. Everything’s expensive, and for a while some things are going to be more expensive, and then eventually things will not be more expensive anymore. In the meantime, it’s not going to be particularly enjoyable. And there could be a recession on the way! (But a near-term recession is not at all a sure thing.)

One thing consumers can do to navigate the moment is to reduce some spending. Maybe put off the summer trip that hasn’t been booked yet, or save that home purchase for a later date, if possible. Walk instead of driving to your destination. “That’s something that will put them in a better position going forward, but also they’ll do their part in contributing to reducing demand,” Sinclair said.

Schulz said that if you have credit card debt, try to pay it down now, before rates go up even more. “That debt is only going to get more expensive in a pretty big hurry. It would definitely be smart to try and knock down that debt as much as you can,” he said. In its monthly review of credit card offers, Lending Tree found that the average APR on new credit cards is over 20 percent, the first time it has hit that since the company started tracking that stat in 2018. Half of the cards they track had their APRs increase in the past month.

One fun fact, or rather, tip: Consumers can call and ask to have their credit card interest rates reduced and, often, find success. According to Lending Tree, more than two-thirds of requests for lower credit card APRs are granted.

There are some measures you can try to take to prepare in the event of an economic downturn, such as building up savings and trying to be extra nice to your boss. But the real answer on how to prepare for a recession is sort of that you can’t.

“If you prepare for a recession, you end up having that recession”

“If you prepare for a recession, you end up having that recession. I mean, it’s pretty simple. Recessions are self-fulfilling prophecies,” Daco said. “If one person prepares for a recession, that’s fine, they’re going to retrench, they’re going to buy a little less, they’re going to be more careful with their outlays. That’s fine. But if 300 million or 350 million people do the same thing, if everybody cuts their spending by 5 percent, well, then there’s a 5 percent correction in spending, so that entails a recession.”

Still, the overall takeaway is that the going is going to be tough for a while, and some people are going to be able to better manage than others. “Just put off buying a car” isn’t realistic advice for everyone. There’s only so much the Fed can do on the economy’s current woes as well. It can take action on the demand side, but there’s not a lot for it to do on supply, which is where a lot of problems with energy and food prices are stemming from. Gas prices are likely to remain high for a while. Other factors putting pressure on prices, such as Russia’s war in Ukraine and the global Covid-19 outbreak, are beyond the control of anyone in the US government.

The economy, which feels terrible right now even if it isn’t really on paper, is about to get worse for a lot of people before, eventually, it gets better.

“The long-term situation the Fed feels that is much more important for them is to go ahead and reduce the pressures on the economy … so that we have a healthier, stable economy going forward,” Sinclair said. “That will set the economy up for better long-term growth.”

Now, everybody has to wait and see whether this pans out, and, in the meantime, deal with their rising gas receipts and credit card bills.

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How Much Money Can You Realistically Make Per Year with


Interest rates on savings accounts are still meager. That means a deposit of $10,000 will only offer a slow growth, depending on the current interest rate, if you keep the money in a savings account. But, of course, banks give you incentives to save, and if you add a monthly deposit to the $10,000, you can expect to earn a higher interest rate. However, interest rates are currently low. With rising inflation rates, your hard-earned savings can often make you more money if allocated differently. Here are five safe ways to use your cash to make more money.

Profit By Paying Your Debt Down

Paying your debt down is quite a profitable way to invest your $10,000. Let’s look at an example to show you how: if in an investment portfolio, your money can earn you a 5% return, but you are paying 23% for a credit card debt, then you are losing 18%.

Therefore, paying off the debt on your card first helps you to save the difference in interest payments. Once paid, you can then invest the remaining funds.

Save More By Increasing Your Mortgage Payments

Some types of interest are tax-deductible (mortgage interest on the first $750,000), while others aren’t (credit card debt). You need to consider your options here to see how much money you can save if you increase your mortgage payments.

If you have a 30-year fixed mortgage at 6%, for $200,00 with 20 years left, then a $100 increase on your monthly payment can save you $19,000 over the loan’s life, and you will repay it three years earlier.

However, suppose you pay a 5% mortgage interest rate and fall in the 28% income tax bracket. In that case, you only pay 3.6% in mortgage interest after taxes. Therefore, if you find an investment that gives you a higher return, you may prefer to invest the money there rather than in your mortgage.

Enhance Your Retirement Planning

Using your $10,000 to increase your 401(k) savings makes excellent sense, especially if your employer matches contributions. However, if you aren’t contributing an amount that fits your employer’s contributions, you lose part of your tax-free contributions. Therefore, consider contributing the maximum amount to boost your retirement savings and lower your income before tax.

The limit of your contribution to your 401(k) increased this year to $20,500 from $19,500. If you are over 50, the additional catch-up means you can put away $27,000, an increase from $26,000.

Consider an Individual Retirement Account (IRA)

Furthermore, even if you have contributed fully to your 401(k), you can add up to $6,000 into a Roth IRA every year. If you are over 50, the amount increases to $7,000 – when withdrawn after retirement, the money is tax-free.

Remember, there are two types of IRAs, and they do differ. A traditional IRA does allow you to write off contributions annually, but these are taxed when withdrawn at retirement.

Other Investment Options

There are several other investment options for getting a good return on $10,000 if you have already met your goals of reducing your debt and increasing your retirement accounts. However, as we currently see, these investments come with risks linked to how the financial markets will perform due to political or economic factors.

Furthermore, converting your investment into cash can sometimes take longer than anticipated – known as liquidity risk.

Stocks – The stock market is a riskier investment than any of the above but has traditionally provided a good return on investment over time. One example is the S&P 500, which has yielded an average return of 10.49% since its inception in 1926.

Mutual Funds and ETFs – For those that prefer diversification, these forms of investing allow you to invest in different securities through mutual fund companies. A long-term strategy is best for these funds that offer returns that closely mimic the market returns of the specific index to which they are linked.

Bonds – The three main types of bonds are corporate, municipal, and treasury, and they have different ratings based on the credibility of their issuer. As a result, bond prices fall when interest rates rise, and you will make less if you sell them before maturity.

Final Thoughts

There are several things to consider when considering investing $10,000. First, carefully consider your debts, type of investment risk, goals, and tax implications, and evaluate the fees of any investments. Paying debt off first has the most benefits than savings accounts, but you also need to consider your financial security. Your investment efforts should enhance your savings, so research, calculate and compare before taking the next step.

 

Jacob Maslow

Jacob Maslow is a native New Yorker with  five children. He left his payroll manager position after finding that his true passion was in writing, and has never looked back.

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