investment

Lessons Of Powerball

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With the Powerball jackpot eclipsing one billion dollars, an unprecedented lottery fever is sweeping the nation.  Around watercoolers, in person and virtually, the entire country is consumed with conversations about how to spend a hypothetical windfall.  While you didn’t win, it’s been fun to think and fantasize about.  Some observations from listening to our members talk about the jackpot: 

1.) Never take the annuity. 

The average return on the annuity comes out to less than a 2 percent annual yield. Historically, that’s less than inflation, meaning you’re better off stuffing cash in your mattress than taking the annuity. Side note: Do not stuff several hundred million dollars in a mattress; aside from the financial and security concerns, your mattress will be incredibly uncomfortable and scrape the ceiling. 

If you were to put your money into one of our savings products, you would get a much better return. Again, we wouldn’t recommend putting a few hundred million dollars into your savings account and calling it a day, but spreading your money around in a variety of financial products could yield much better results. For example, our money market accounts, savings certificates and similar savings products all offer returns with low risk, much better than leaving your money in an annuity provided by the lottery commission. 

2.)  No one seems to understand what a billion dollars is. 

One billion dollars is not a lot of money. It’s an impossible amount of money. It’s easy to forget that one million dollars is one thousand times larger than one thousand dollars; it’s even easier to forget that one billion dollars is one thousand times larger than one million dollars. In other words, if you currently owe $250,000 on your house, one billion dollars would pay your mortgage, the mortgage of every family in your neighborhood (100 houses at $250,000 is $25 million), the whole neighborhood’s car notes (200 cars at $40,000 is $8 million), put everyone’s kids through college (200 children at $250,000 is $50 million) and still have enough money left to do the same for 10 more neighborhoods just like yours. 

3.)  One billion dollars is so much money, it’s enough to rethink our happiness. 

As long as we’re all having trouble pretending to spend the jackpot, it’s a reminder that joining the one percent doesn’t have to be the goal. If you can’t think of a way to spend one billion dollars, you probably don’t need to make one billion dollars. If you were to hit a jackpot big enough to pay off your debt, fund your retirement and set up a fund to take care of your family for the next century, would that be enough to satisfy you financially? If so, you could probably do so for a fraction of the Powerball jackpot. Each individual’s experience will vary, but for most of our members, a few million would be enough to hit all of those goals. 

So what would you do with the rest of the money? Who cares? Everything after that point would be fun, but meaningless. We’d all love to own an NBA team, but most of us would be almost as happy with season tickets. A lot of us would rather watch the game at home, anyway. Would you really like to drive a nicer car? That’s great, but how much time would you spend in your Bentley if you weren’t commuting to work every day? 

The other side of the coin is true, too. The horror stories about lottery winners who ended up alone, broke, and miserable have given a lot of people reason to pause. It seems like every conversation about the Powerball jackpot has to bring up the curse of the lottery. Whenever that happens, people talk about putting aside enough to make sure they’re happy, but instead it seems like having so much money is what causes the curse. With one billion dollars, you could give away 99 percent of your winnings and still have enough money for everything in the last paragraph, so why not just give it all away at the outset? Then, no one is coming around with their hands out, you never have to wonder if people are after your money, and you’ll still be set up well forever. 

4.)  Figure out your retirement number. 

One of the most interesting things underlying these conversations is that people don’t seem to know how much they’d need for the rest of their lives. While it’s not likely to ever come up because of lottery winnings, knowing how much money you need to live on for the rest of your life is important. It lets you plan your savings, investments and schedule your retirement.  If you don’t know your number, it’s time to make serious plans.  Stop waiting on a lottery windfall. We’ll help you come up with a reasonable, achievable plan so you’ll eventually be able to retire.  It might not be a retirement in the Bahamas, but even on your salary, you should be able to retire someday.

Financial Lessons Of The Big Short

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A friend of mine teaches at a university where the 2008 financial crisis came up during one of his recent class discussions. He asked his students, “If you had one million dollars and a time machine, could you go back to 2008 and make a profit?” The class replied that they couldn’t.  Not one student believed he or she could have turned a profit from the financial crisis. He was troubled by that, so he asked his other classes the same question and no one indicated that they understood what happened well enough to do so. Finally, he asked his colleagues, and even they were stumped.  A few of them had vague ideas or suggested they would just buy stock in Google or Amazon while it was low. Still, none had a firm enough grasp on the events of that autumn to confidently explain how they could have made money. 

There are financial lessons to be learned from many movies and figures in popular culture, and The Big Short is no exception. Obviously, we haven’t seen the film, but the Michael Lewis book from which it is based, provides the single best explanation of how the financial system crashed. Like Lewis’ other books, including The Blind Side, Moneyball, Boomerang, and Liar’s Poker, it’s an immensely readable book because Lewis is a gifted writer who can explain difficult concepts because Lewis starts with people rather than statistics.  The people in The Big Short are some of the most interesting characters he could have chosen: He profiles the people who made an enormous profit from the financial crisis, even though they didn’t have a time machine.
Here are a few of the lessons the book (and hopefully the movie) has to offer:

Don’t avoid risk, particularly with your home.  While a generation of would-be homeowners let the financial crisis scare them away from homeownership – a surprising number of Millennials say they’d prefer not to own a home, even if they had the money. The real lesson of the financial crisis is that it’s better to be in a home than not.  It’s scary to see people lose their homes; evictions are terrible and it’s easy to see why young people who saw the wave of Americans losing their largest investments, jobs and nest eggs would be spooked.  However, the people who had taken out loans that they could afford didn’t lose their homes.  That was incredibly important, because … 
If you own your home, it’s a lot easier to lose money on paper. Lewis reports that, during October 2008, Americans lost a combined one trillion dollars.  The thing about that trillion dollars is that it was everywhere we looked: The federal government had a shortfall, so it passed it to the states, which passed it to the locals, so it cut back all government services. Look no further than spending on higher education and tuition costs.  People stopped retiring at the rate they had been, which was rough for Boomers, and it also meant that they weren’t opening up spots for Millennials in the workforce.  Even the divorce rate plummeted because people couldn’t afford to split up a household.
In the end, that trillion dollars became three trillion in government spending to start the economy back up. That is an insanely large amount of money.
But, and this is the key, most individuals who kept their jobs and homes didn’t actually lose money. In a lot of cases, they lost future income and they lost some value in their homes, but unless they cashed out of the stock market or sold their homes for less than they put in, they didn’t lose actual money; they lost money on paper.  It’s not like losing money on paper is fun, but in the worst financial crisis in nearly a century, owning a home was still the best way to keep safe.  If you lost some of the value of your home, but waited the recession out, you’re probably back to where you were before 2008, if not ahead. That’s as safe as it gets.
Something that’s equally as secure is saving your dollars at Destinations Credit Union.  We’re insured by the NCUA, so there’s very little risk and your money isn’t being invested in high-risk/high-reward propositions like mortgage-backed annuities, which brought down the economy in 2008. 

One trillion dollars is a lot of money. If you’d like to imagine that, think of a heist movie where the protagonist walks off with one million dollars in a duffel bag.  Now, imagine there are one million duffel bags, each with one million dollars in them.  Or, if you’d prefer, think of the Dallas Cowboys, who were valued at $1.7 billion in 2009, one of the few NFL franchises to gain value during the year after the financial crisis.  That same year, Cowboys Stadium, now known as AT&T Stadium, opened with a price tag of $1.2 billion.  As the most valuable NFL franchise playing in the most expensive stadium in the country, both could be had for just shy of $3 billion.  So, America lost as much money that month as it would take to purchase the entire NFL 10 times. 

Sometimes, it takes a psycho. One of the most striking things about the profiles in The Big Short is that the people involved all made big bets against the entire rest of the world.  They refused to accept common wisdom, they didn’t listen to their colleagues and investors who thought they were crazy, and they bet on an event which had never happened before and required an orchestrated failure at virtually every level of the American economy.  

The kind of person who can make a bet like that is a little bit crazy. Sometimes, that’s what it takes. As we think about The Big Short, it makes sense that all of those professors and students don’t know how they could make money in the recession, because making that money would require major antisocial and counter-intuitive behaviors. That’s why it’s important to believe in oneself, but even more important to look at the cost of being right: No one involved actually seemed to be both happy and well-adjusted. And we have to wonder: what’s the point of making a profit without that?
Sources:

http://www.bloomberg.com/news/articles/2010-08-26/dallas-cowboys-top-forbes-list-as-nfl-team-values-have-first-decline 

http://espn.go.com/blog/dallas/cowboys/post/_/id/4691344/how-much-are-the-cowboys-worth 

http://football.ballparks.com/NFL/DallasCowboys/newindex.htm    

How Will I Ever Retire If They Keep Moving The Finish Line?

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What happens if you’ve made it to the day you thought you’d be retiring, but you’re simply not financially ready? Perhaps you passed your “Plan B” date. Maybe even “Plan C” has come and gone. You know you’ve been making the right moves, but a temperamental stock market, kids who stayed home longer than expected or an unlucky series of events keeps pushing back your time frame.  So, in exasperation, you ask … 

Question: “How will I ever retire? When will it be safe to stop working?“ 

Answer:  Well, hopefully very soon.  We’re going to show you some ways to put luck back on your side.  It’s going to be part planning, part faith and a good deal of ingenuity, but we can get your pictured future back within sight again. 

Question:  “OK, so how do I know when I’ll have enough money?” 

Answer:  The first thing you need to do is realize that enough money is possible.  It’s scary to read headlines about Boomers running out of money because they lived so long, especially when they’re coupled with stories about how the 4% rule isn’t enough.  If you take these articles at face value, you’ve got to come up with 40 years of savings, assuming you’ll be taking out as much as 10 percent of your nest egg every year.  Because it’s difficult (if possible at all) to get to that point, it’s easy to give up. 

Instead, go back to 4%.  Or, if you’re being conservative, make it 5%. That’s a 25% raise! That’s a lot! Then, remember the lessons of your working life: Anything that happens far in the future should be weighted far less, because you never know what might happen between now and then.  You might find you don’t care for fly fishing that much or you no longer need that annual trip across the country. Your neighborhood’s home values could rebound.  Maybe you’ll stumble onto a strong investment.  There’s too much uncertainty in life to freak out about what’s going to happen far away into the future. Take 5% out, per year, until you’re 85.  That’s plenty. Anything beyond that is too much. 

Question:  “How can I make sure I’ve got enough retirement income?“ 

Answer:  One of the easiest ways to produce panic is realizing that money only flows one way once you stop working. You’ve been conditioned to treat any month in which you spend more than you earn with revulsion, shame and guilt. Now, that’s going to happen every month – for the rest of your life.

A lot of retirees feel more comfortable with money coming in on a regular basis. You can accomplish this in a variety of ways.  First, try to put off Social Security as long as possible.  The higher payout will make retirement much easier. Second, try to create passive income using investment products.  In the same way that dividend-producing stocks pay out on a regular basis, you can create passive income that can be accessed any time by moving chunks of your retirement into high yield savings products like money market accounts.  That way, you can still budget the way you used to without having to sell your stocks (while hoping you guessed the right time to sell).

You can also create passive income by using your home equity to fund a business venture.  Right now, mortgage rates are low, but a lot of Boomers are missing out because they paid off their homes in order to retire.  You use a home equity line of credit to buy a rental property (which builds equity at the same time it gives you a paycheck) or start an online business built around your hobbies.  If you love to knit, sell handcrafted items on Etsy.  Do you like to fish? Start manufacturing lures with the equity in your home.  These ideas can generate a monthly income for you and also give you something else to leave to your children.  In a pinch, you can even sell the rental property or sell shares in the business for a quick cash infusion. 

Question:  What about my health?  That can be a big cost, even with Medicare. 

Answer:  One of the best places to put some money when you retire is into various forms of insurance. You probably already have life insurance, homeowners, and insurance on your other big purchases, but you also probably only have Medicare to cover the health side of your insurance portfolio.  What happens if you need something Medicare doesn’t cover?  Is it worth it to go on Healthcare.gov and try to find a supplemental plan?

One way to keep your options open is to try a “do-it-yourself” Health Savings Account (HSA).  While traditional HSAs gain their benefits from your employer paying into them, you can get a lot of the same benefits simply from putting some spare cash into one of our high-yield money market accounts.  That way, you’ve got money put aside for a health emergency, but you’re not spending on a premium you’ll only need very rarely.  As an added benefit, you can access that money if you need it for things that aren’t health-related if some other kind of emergency comes up.

Hopefully, you’ve gotten a better idea of how to tackle retirement.  You need to have faith and protect yourself at the same time.  The best way to do that is to put your money with someone you trust and give yourself access to it, just in case.  If you need any more info, want more guidance, or just need someone to talk to about taking the leap, give Destinations Credit Union a call at 410-663-2500.

The Government’s $3 Trillion Dollar Plan

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So, whatever happened to that interest rate hike?  It was supposed to happen all spring, then all summer, and now we’re supposed to be fully confident that the Federal Reserve is going to raise interest rates by the end of 2015.  But so far, it hasn’t.  On one hand, that’s great news: You still have time to lock in a fixed-rate mortgage or take out a low, fixed-rate home equity loan to pay off those credit cards before the rates go up. By the way, if you’re interested, that’s only a click away.  

On the other hand, it’s a little worrisome.  Raising the prime interest rate is how the Fed tells us that the economy is doing well and it’s time to save money.  So, why haven’t we seen an interest rate hike? The answer is more interesting than you might think, because it involves a multinational chain of events and a $3 trillion gamble with your tax dollars on an interesting new idea. It’s an idea that falls somewhere between efficiently practical and boringly immoral, just as many decisions often are when they’re made by folks who have spent too much time staring at spreadsheets and not enough time breathing fresh air.

To explain what’s going on, we need to flash back six years.  At the height of the financial crisis, the two biggest concerns for the long-term future of the American economy were the resiliency of the big banks and the incredible number of home foreclosures.  If the banks couldn’t get their balance sheets straight, they couldn’t loan money, which would mean that anyone who wanted to buy a home, start a business, or go to college would suddenly find themselves without a loan to do so. Meanwhile, those on the brink of foreclosure, trying to keep their businesses afloat or finishing their education might lose everything they’d worked to acquire.  Of particular concern to the government were American homes, because our homes represent the largest part of our wealth, are essential to our well-being and buoy our retirement accounts.  Unfortunately, investment products built on inadvisable home loans were the centerpiece of the financial crisis, making the protection of our mortgages a difficult task.

The government’s solution was to bail out the banks, but to do so in a way that we hadn’t tried before.  Normally, the Fed puts money into the economy by buying government bonds from banks by using money it creates on a computer in its offices.  Fed managers tap on their keyboards, change a few spreadsheets, and poof, money is created.  In the aftermath of the financial crisis, however, they decided to create money by buying mortgage bonds, which made it easier for government money to flow to beleaguered homeowners, thereby protecting Wall Street and Main Street at the same time.  

However, the Fed can’t just create money without enduring some repercussions. Usually, it has to either remove the money from the economy over time, which can slow down an economic recovery, or watch as inflation eats away at the value of the dollar, causing people to dip into their savings and work harder for less actual pay. Neither option is fantastic.
This time, the repercussions could be even worse.  Because the Fed has tied the $3 trillion it created over the last six years to mortgage bonds, removing the money could cause a spike in mortgage rates. After all, that $3 trillion has been paying part of your mortgage for the last six years; that’s a profit for your lender that’s been passed on to you.  If the Fed chose to remove the $3 trillion and raise interest rates, we could see a spike in mortgage rates that all but guarantees young people will rent their homes for their whole lives.  If you were planning on selling your house in time for retirement, it could cripple the value of your home, because the same buyer who had $250,000 wouldn’t have more money, but they would have to pay more to their lender.  Not fantastic.

All year, the Fed has been staring down this crisis, warning us that it would have to raise rates, all the time hoping that doing so wouldn’t kill the housing market. Then, a really odd set of circumstances kept it from having to do so.  Twin financial crises in Europe and China drove international investors to the dollar. As they sought to sell other currencies, they propped up the value of the dollar, delaying the effects of inflation and buying the Fed more time.  

Now, a new plan has emerged, which is where a really interesting idea comes into play.  What if the Fed didn’t take the money out? Instead, it’s started paying the banks to keep savings with Washington, just like your savings account (except thousands of times larger).  The idea is that, as long as inflation is being kept under control through foreign investment, our central bank can pay about $30 billion a year in interest for financial institutions to store money. That money makes the banks want to save, which takes money out of the economy, which they pass on to some customers in the form of higher savings rates and making them want to save as well. Suddenly, the money has come out of the economy, inflation isn’t a risk, and everyone along the way is getting paid for doing so, especially big banks and their shareholders.  

Reminder: that’s your $30 billion per year.  Another reminder:  $30 billion was the budget request to keep Pell grants in line with inflation … over the next 10 years.  You’re paying the mega-banks 10 times what you’re paying to keep college funding from shrinking.

It’s a short-term solution, obviously.  Voters don’t love their tax dollars being spent to reward the same banks that caused the financial crisis, and those banks, by definition, are the ones being let off the hook.  Europe and China won’t buy dollars forever, particularly if it doesn’t look like the Fed is raising rates (which would help foreign investors who are saving their greenbacks).  At some point, the money is coming out of the economy.  Ten years from now, the Fed says, it will all be gone.  The only question is, how fast it will come out, which means we’re still waiting to hear when the prime interest rate is going up.

And that brings us back to today.  We’ve been told to expect a rate hike by the end of the year, and when it comes, it’ll cost you more to pay off your credit cards.  If you’re in a variable rate mortgage, your monthly payment will eventually go up.  The best move today is the simplest one, which is transferring over to fixed-rate loans.  Do it today, so you can save thousands of dollars.  Then, once you’ve locked in your rate, let your congressperson know that you don’t love your tax dollars continuing to bail out the mega-banks six years later.  

Sources:
http://www.nytimes.com/interactive/2015/business/economy/fed-interest-rates.html?_r=0
http://www2.ed.gov/about/overview/budget/budget16/budget-factsheet.pdf
http://www.nytimes.com/2015/10/27/us/politics/congress-and-white-house-near-deal-on-budget.html
http://budget.house.gov/fy2016/
http://www.npr.org/sections/money/2015/10/23/451228005/episode-659-how-to-make-3-trillion-disappear
http://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/  

Investing: Zagging

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When you talk to your friends and neighbors about investment strategies, you probably hear a lot of the same ideas. People tend to invest some amount in blue chip companies, their employer, mutual funds, 401(k)s, IRAs, 529s, and money market accounts. As you look around, you might notice that everyone looks kind of similar. They may be wearing the same casual clothes you made fun of your parents for wearing a few years ago. And you may begin wondering if investment strategies are like Old Navy cargo shorts … something we all do without thinking about it.
It’s fun to imagine a backyard barbecue for money managers – well, it’s more fun than attending a backyard barbecue for money managers, anyway – and wonder if they have the same investment conversations we do.  Do they all do things basically the same way?  Is the distinction between these professionals as simple as how they slice the pie?

In contrast, whenever one of our friends makes a great investment, they hold court at the cookout. They tell us about the detective work they did or their amazing insider info, and we eagerly gobble it all up. The same thing happens with the pros.  When one investor makes a counterintuitive trade that pays off, they become famous and charge a fortune in fees for their new fund.  The easy lesson is that when everyone else is zigging, it’s time for you to zag. Unfortunately, when everyone else zigs, they probably have a good reason for it, and zagging is a bad idea. 

The kinds of high-risk investments that sound cool at a barbecue can bring a great return, but they rarely pay off. It might not feel like it, but there are actually many more people at the barbecue who lost money zagging than there are people who made money. They’re just not going to gather everyone around to tell them about it.  In fact, 8 of 10 fund managers failed to beat the market average last year, according to CNN.

Think about it this way: If you have 100 investors and 90 take the well-trodden path full of CDs and index funds, 10 others are taking odd risks and following their gut.  If 90 percent of those people lose their money, that’s 9 out of the 10 idiosyncratic investors who lost money. If you do that again next year, that person needs to try something new again and has, once again, a 10 percent chance of success.  


Then, imagine the same scenario the following year.  The likelihood that this person can make big money three years in a row in this scenario is one in a thousand.  If you expand it to five years in a row, the odds drop to one in a million.  If it seems like there are too many investment experts living off a vast fortune for the odds to be so low, remember that the United States is a country in which being one in a million means there are 300 people exactly like you.  

That diverse and boring portfolio is your best bet for bringing in the steady return you want. So, while it might be as boring as cargo shorts, remember that no one likes the neighborhood dad who always shows up to a casual barbecue wearing a fancy jacket and trousers either.
Sources: 
http://www.efficientfrontier.com/ef/997/tough.htm 

http://money.cnn.com/2015/03/12/investing/investing-active-versus-passive-funds/ 

http://www.corepw.com.au/fund-manager-fees-fallacy-division/    

Investing In Your Career

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When you think of your investment portfolio, you probably think of stocks, savings and maybe a few other financial products you own or things you’re planning to use for buying a house, fund retirement, or to keep yourself protected.  What you might overlook is the investment you’ve made in your career. You’ve invested time in your career, and if you’re still paying off student loans, you definitely know you’ve spent money on it as well.  Just like any other investment, your career has risk and return.  If you want to get the best return on your investment in your career, then here are a few tips that can help: 

Get a degree.  If you haven’t finished college, you might have found yourself bumping up against a glass ceiling.  You can finish your degree online, often in a short amount of time and without spending a ton of money.  If you’d rather go back to school in person, talk to us about student loan options.  

Get an advanced degree.  It’s no surprise that the average income goes up with each advanced degree that individuals earn.  If you’re looking to advance your career, consider using one of our loansto finance an MBA, which is useful in virtually every field. 
Build your brand.  More and more, career changes and advancement can be built through the Internet and social media.  You can work on building your personal online brand or get training and a certification in all sorts of software and design to help others build their brand, making money in the process.
Learn another language or another culture.  There are very few job skills as portable as language and communication.  If you find yourself out of a job, knowing another language can help you get that next one lined up. Understanding different cultures makes it easy to move if the next job is across the country or even elsewhere in the world.
There are a lot of ways to invest in your future, but the one we tend to overlook is spending money to develop our jobs.  Unless you got in on the ground floor of investing in Google, you’re probably never going to find an investment that pays you more over the course of your life than the one you’ve made in your career. Don’t neglect it.

How To Take Advantage Of An Interest Rate Hike

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The last time the Federal Reserve raised interest rates, Barack Obama was a U.S. senator, but many prognosticators who watch the Fed say that a number of factors suggest we’re due for a rate hike sometime within the next few months.  If the Fed raises interest rates, it will mean a raise in the price of any new loan you take in the future as well as an increase in how much you pay every month on the adjustable-rate loans you already have.  So, even if the discussion leaves you yawning, it’s important to act quickly if you think the Fed will raise interest rates. That’s because taking the right actions before a rate hike can save you thousands of dollars in interest payments after the rate hike.  Here are some tips to protect yourself, save money and maybe even make a profit if interest rates go up this year:

If you have a high credit card balance, move it to a loan with a low, fixed rate.

Credit card rates have remained around 13 percent, on average, for several years, but a Fed hike would raise those rates.  To make matters worse for people with sizable credit card debt, those rates compound quite quickly on a revolving account like your credit card.  

One way to deal with your credit card debt is to move your balances from the cards you have now to a single high-limit card with a 0% introductory rate and pay it off in full before the introductory rate expires. However, using a credit card to pay off a credit card can be a dangerous strategy, because if you don’t pay off the principle by the end of the introductory period, whatever you have left will start charging interest again, and perhaps at a high rate (pay attention to the fine print).  You also run the risk of falling back into bad habits and filling your new card up to its limit again.  

You can also look for the lowest fixed rate card that you can find and come up with a plan to pay it off.  Destinations Credit Union offers a low-rate MasterCard with lots of benefits (ScoreCard rewards, no annual fee, no balance transfer fees, etc.).

If you want an even lower rate, you might consider a home equity loan or line of credit.  Home Equity Lines of Credit (HELOCs) generally offer lower rates than Home Equity Loans, but the rate is variable so it may go up.  Destinations Credit Union offers its HELOC at Prime minus 1% with a floor rate of 4%.  Prime would need to increase by more than 1 3/4% before the rate on your HELOC will go up.  Home equity loans have a low, fixed rate, so you can avoid an interest rate hike and save money in interest payments every month.  While it might seem a little scary to borrow against your home equity, if you have accumulated significant credit card debt, your home might be the only source of wealth you can borrow against to cover it.  The loan payments should be less than you’re paying your credit card companies every month, so you’ll find it much easier to make your payments and get out of debt.  

If you’re interested in using your home equity to get out of credit card debt, you can find out more by calling a loan officer at 410-663-2500.

If you were planning on buying a house (or refinancing) soon, it’s time to make your move.

Fixed-rate mortgages will be unaffected by any interest rate hikes the Fed might employ, so if you think a rate hike is coming, get your mortgage now.  The difference of a few percentage points in the federal rate could mean mortgage payments increasing by as much as hundreds of dollars per month for some homeowners. Avoiding that fee is as simple as getting the paperwork for a new home loan finished before a rate hike occurs.  

If you wanted the extra few months to bulk out your down payment, or you weren’t sure about refinancing this summer, it’s time to sit down with a professional who can take you through the numbers and find out how much that indecision might cost.  You can speak to a mortgage specialist with our underwriting partner, Financial Security Consultants, or follow this link to get pre-approved right now.

If you’re investing, it’s time to look at conservative options.

As long as the Fed kept interest rates low, it was a good idea to invest more heavily in stocks than investment products offered by financial institutions.  Low rates meant easy loans to businesses and expansion was easy, so it was driving up stock prices.  As rates go up, credit markets slow down, and expansion becomes less profitable for all those corporations in which you own shares.  

At the same time, as the prime interest rate goes up, so does the return you’ll enjoy on your money market account, savings certificates, or any of a variety of investment products you may have.  Find out what we can do to put your money to work by checking out our insured deposit accounts, and if you’re trying to get some money put together for retirement, don’t forget about our IRA accounts.

No one knows for sure what Janet Yellen is going to do.  Predicting the Fed’s rates is a big-money business for a lot of powerful institutions.  In the end, you’re going to have to decide if you want to leave your money in places where a rate hike could increase your costs, or put it into more stable products.  If you aren’t sure what to do and want guidance, feel free to call or come by, we’d love to help you understand your options.

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