How should you time big purchases and rebalance your portfolio as the Federal Reserve is expected to unveil another 75-basis point rate hike? Financial counselors and money managers have some advice.
Weeks ago, Federal Reserve Chair Jerome Powell cautioned there would be “some pain to households and businesses” as the central bank kept jacking up interest rates to try fighting four-decade high inflation.
Now, average annual percentage rates on a new credit card are 18.10%, inching close to an 18.12% APR last seen in January 1996. Car loans have reached 5% and mortgage rates hit 6% for the first time since 2008. Don’t take it personally. Fed is raising borrowing costs to crimp demand and cool inflation, said Amit Sinha, managing director and head of multi-asset design at Voya Investment Management, the asset management business of Voya Financial VOYA, +0.41%.
Focus on trimming away high-interest debt, experts say. There’s very few investment products with a good bet of future double-digit returns, so get rid of double-digit APRs on those credit-card balances, they note. Carefully time big purchases The higher rates now are helping dissuade people from big purchases. Look no farther than the housing market.
While waiting, avoid putting down payment money for a house back in the stock market, they said. The volatility and risk of loss outweigh the chance of short-term gains. Portfolio rebalance for rocky times The standard rules always apply: long-term investors with at least 10 years of investment should stay completely invested, said Sinha. The havoc for stocks now may present bargains paying off later, he said, but people should consider boosting their fixed-income exposure, at least in line with their risk tolerance.
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