Which money management, banking, and personal finance trends will we see throughout 2016 and into 2017 and beyond? Over the next 24 months, in addition to a new president, we will likely see higher interest rates and the rise of mobile banking. The key to help your financial goals move along nicely in the New Year is the ability to understand economic changes before they happen and adjust accordingly so that you are able to maximize your savings and investments.
Rising Interest Rates
In December 2015 the Federal Reserve raised interest rates for the first time in many years. This interest rate hike can and will impact your life. Are you going to use this interest rate hike to your advantage? With the Fed having direct control of short term interest rates, we can likely expect the long term interest rates to rise also.
With the expectation and anticipation of rising rates over the next decade, we can also expect and brace ourselves for rising costs in homes and vehicles. Rising costs of homes and cars is something we might not want to look forward to, but we can plan accordingly for this type of economic situation. Also, with rising home and automobile costs, come some advantages as well. For instance, higher interest rates can translate to higher returns on investment opportunities. Most CDs paid less than 1% for a one-year return rate. That figure was almost six times that amount in 1999 for CD paying interest compared to 2016. Savers can take advantage of this by having more funds allocated to CDs and Money market funds.
Low Inflation In U.S. And Overseas
We anticipate seeing a low GDP growth in China and in the United States. This can have multiple effects to all major economies, but how will this affect you as the consumer? Well, for starters, low GDP growth results in lower demand for goods and products. Lower demand for these goods and products results in lower overall prices on goods and commodities. We can also expect retail gasoline at the pumps to be low overall in 2016 and heading into 2017.
Beef Up On Savings And Retirement
With rising interest rates now a likely reality for the foreseeable future, you may want to look into stacking up your savings and retirement. Low interest rates usually force savers and investors to move their cash from low interest paying financial instruments such as money market funds into equities such as stocks and mutual funds.
With rising interest rates, it is good for you to diversify. Of course you are going to want to leave a portion of your retirement funding in equities such as stocks, but you more than likely want to diversify into other financial instruments that may be paying a lot higher interest rate as compared to the past several years.
This may be a great time for you to analyze your investment strategy for the short term as well as the long term. Take a look at your strategy over the last 5 to 10 years and see where you can re-allocate some of your funds. Overall, make sure that you are not just leaving your savings and retirement strategy on autopilot. Having your money in the exact same financial instruments from several years ago can end up costing you thousands of dollars or more unless you take action now.