October’s consumer price index (CPI) slowed to 7.7%, below economists’ forecasts. However, with US inflation still high and constant warnings of a recession, many investors are worried about their savings.
In fact, 63% of middle-income workers and 43% of high-income workers live paycheck to paycheck, according to a survey of 4,000 people by LendingTree.
Here are five Marketwatch questions to ask your financial advisor, if you have one, or yourself — if you want to take stock of your portfolio, retirement savings, income and budget.
1.) What are my long-term and short-term financial plans?
The first step to getting your financial situation in order is to take stock of your financial plans. How long do you still plan to work? Do you want to buy a house or move? Do you have family obligations, like sending a child to college? Do you have a target retirement date?
Once you’ve mastered your big financial questions, it’s important to tackle everyday financial challenges, says Jennifer Kang, financial planner and founder of JWK Financial.
That means, pay off your debt, calculate your monthly budget, adjust your spending, and think twice (or thrice) about impulse purchases.
Kang even says it doesn’t hurt to have a one-on-one with your landlord about your rent.
Build up some emergency savings, if you don’t already have one. Financial advisors usually say it’s important to save six months’ salary if you find yourself unemployed or unable to work.
Also, in light of inflation and an impending recession, beware of for-profit debt settlement companies or other types of scams.
2.) How does inflation affect my savings?
By taking stock of your debt, including your mortgage and student loans, you can determine how much inflation is weighing on your budget. It’s your “personal inflation rate,” as financial adviser Alex Borgardts of News Bloom Wealth in Kansas City, Missouri, puts it.
Because inflation eats away at everyone’s purchasing power, the only thing you can honestly do is cut back and spend more wisely, says Alonso Rodriguez Segarra of Advise Financial in Coral Gables, Florida.
Inflation also reduces the value of your retirement savings, of course, but with stock and bond markets as volatile as they are, some retirees and near-retirees are too risk averse to increase their market exposure.
Traditionally, the rule of thumb was to have a 60/40 portfolio, with 60% of your assets in stocks and 40% in bonds. This is an important conversation to have with your financial planner, especially now.
3.) How diversified is my portfolio?
Directly related to the question of how inflation affects your budget and your savings, there is the crucial question of the real diversification of your portfolio.
This means investing in more than traditional stocks and bonds, looking at a wide variety of sectors and markets and gaining exposure to not only domestic but also international stocks.
Marketwatch columnist Philip van Doorn recently recommended 27 stocks, including consumer staples and blue chips, that can give you a more diversified portfolio than the S&P 500.
4.) Do I have emergency savings?
Let’s go back to the question first raised under question #1: Do you have any emergency savings?
Financial advisers widely cite the startling Federal Reserve figure that only 40% of Americans could cover a sudden $400 emergency.
While Americans have been hoarding cash during COVID since being locked down at home and receiving stimulus checks, those $1.7 trillion in surplus savings in mid-2022 are slowly being depleted by people who put everyday items, including groceries, on their credit cards.
With a personal savings rate of just 3.3% in the United States, it has never been more important for people to know and store their savings, including emergency savings.
5.) Should I change course?
If you have debt of any kind with variable interest rates, you must repay that debt. This is because interest rates will continue to rise, at the hands of the Federal Reserve, in its attempt to control inflation.
If you don’t qualify for President Biden’s student loan forgiveness program, or if it fails, for example, it would be wise to pay off that debt, along with other personal loans and credit card debt. .
For investors not nearing retirement who can invest their 401(k) and other long-term retirement plans, it’s best to wait out inflation, market volatility, and the recession storm , say Kang and William Thompson, financial planner at Valor Wealth Partners in Boston.
“Doing nothing is not a bad thing,” Kang says. “Just because something is happening doesn’t necessarily mean you have to make changes.”
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