The federal reserve raised interest rates on Wednesday by a quarter point, which is the third such rate increase in 2018. This always bring questions from investors; especially those planning for retirement. “Why is the fed raising rates and how will it affect me?”
Raising rates is a show of strength in this economy. This is what the fed said:
The Federal Reserve’s chairman, Jerome H. Powell, said on Wednesday that the American economy was experiencing “a particularly bright moment.” The Fed described economic conditions as “strong.” It predicted that growth this year could top 3 percent, before slowing in coming years. Unemployment remains low, inflation remains around the 2 percent pace the Fed regards as optimal, and the pace of investment has increased, it said.
Raising interest rates does hurt borrowers because your variable interest rates on things like credit cards, home equity loan and adjustable mortgages will tend to go up, costing the borrow more. In the same regard, banks tend to pay a higher interest rate on savings accounts and CD’s.
If planning for retirement, and you have a longer time horizon on your hand, these news releases can cause individuals to take unnecessary action. If you have taken time to develop a plan to get to your goals in retirement, news like this should not alter those plans.
Sometimes it’s good to be reminded of some basic financial planning that will stand the test of time, and not focus on recent news. I recently read these tips by Knight Kiplinger, the editor in chief of Kiplinger’s Personal Finance. Following advice like this will have a much greater impact on your financial future than a quarter point rise of interest rates.
1) Wealth creation isn’t a matter of what you earn, but how much you save.
2) Your biggest barrier to becoming rich is living like you’re rich before you are.
3) Pay yourself first. Have a retirement and other savings deducted from your paycheck. If there isn’t enough money left over for bills, cut your spending.
4) No one ever got into trouble by borrowing too little.
5) Conspicuous consumption will make you inconspicuously poor.
6) The key to stock market success isn’t your timing of the market; It’s your time in the market
7) Diversify, because every asset has its day in the sun – and its day in the doghouse.
8) The foundation of great fortunes are laid in bear markets, not bull markets.
9) Money can’t buy happiness, but it can make unhappiness easier to bear.
10) Sharing your wealth with others is more fun than spending it on yourself.