Halfway into January, the S&P 500 is up almost 1%. The market largely ignored strong inflation data on Friday. The Consumer Price Index, or CPI, came in at 3.4%, with Core CPI, which removes food and gas from the calculation, at 3.9%.
Remember that the Federal Reserve Bank has a dual mandate: price stability, which they have targeted as an average inflation rate of 2%, and maximum employment. Some analysts have been predicting rate cuts as early as March. I believe, with continued unemployment numbers below 4% and persistent inflation, that we won’t be seeing interest rates come down any time soon.
With higher interest rates staying around, now is a good time to look at both sides of your balance sheet. If you have cash in a checking or savings account, move it to a high yield savings account or money market, ideally one earning over 4%. Check with your financial advisor; they may offer these accounts with FDIC coverage limits of up to $1 million.
If you have high interest rate debts, now is the time to pay those off. If you have multiple accounts, pay the minimum of each of them, and then put everything you can towards the one with the highest interest rate. If you have serious debt, this may mean getting a second job for a few months or forgoing all but the necessities for a little while. Consolidation loans may also be an option if you can lower your interest rate.
Before you pay off lower-interest rate loans, think about two things: first, can I earn more in a high yield savings account and second, will I still have enough in emergency savings if I pay off this loan? Being debt free, with the exception of a mortgage, is a terrific goal. But if someone will lend me money to buy a car at 2%, and I can earn 4% in a savings account, I’d rather put the money in the savings account and set up automatic payments for the loan.
Your action item this week is for parents of college students. The revised FAFSA is finally open, so be sure to file as soon as possible.
Also this week, our signature event, Women, Wine & Wisdom, goes co-ed. Come out Tuesday night for an economic update, looking at what happened in 2023 and what we expect for 2024. Registration for this and all our educational events is on our website at covingtonalsina.com, or on our Facebook page.
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