Trending: Personal Investing
You’re hearing it all around: chatter of recession, inflation, shifting industries. What does it mean for you and how you manage your personal investments? We asked Bentley alumni experts to keep you updated with the latest.
The number one question: Are we going into a recession? Think back to your Econ 101 class and you’ll remember that recessions are a normal part of every business cycle. That said, it’s crucial to make sure your investment portfolio is allocated the right way going into periods like this. Many people might be over invested in technology and other large cap growth stocks. Those companies have performed phenomenally over the last 10 years, but that may not be the case going forward. These days, we favor companies with strong balance sheets, especially those that are dividend payers. To quote the great Wayne Gretzky, “Skate to where the puck is going, not where it has been.”
The biggest trend I’m seeing of late is rising interest rates. Younger alumni are likely unfamiliar, since we haven’t been in a period like this since the 1980s, when a mortgage rate could have been up to 13%. Going forward, it will most likely get more expensive to borrow but also more advantageous to be saving. One piece of advice is that if you have savings at the bank, whether for an emergency fund or a particular purpose (e.g., a down payment on a house), you could consider purchasing short-term certificates of deposit (CDs) or, for tax advantage savings, U.S. Treasuries. It is a higher yield without the market risk.
As pensions are eliminated in favor of 401Ks, you should always contribute up to what the employer will match. Otherwise, you are leaving free money on the table! Put in as much as possible when you start your first job. When you start out of the gate contributing, you will work your budget around it and you won’t miss the money. That said, it is never too late to catch up. Each time you get a raise or bonus, increase your 401K contribution.
Finally, proper estate planning is key. Congress has been discussing lowering the estate tax exemption amount. This means more of a person’s or family’s wealth could be subject to estate tax. With the right planning, more of this can be passed on to family instead. I encourage you to coordinate with your financial adviser and estate attorney to make sure they are taking the proper steps.
In our Financial Planning concentration courses, I suggest to students that it is a no-brainer, assuming you are healthy, to open a health savings account (HSA); these have grown in popularity since launching in 2004. Tax savings are significant: Contributions are made on a pre-tax basis, meaning money and earnings grow without any tax implication if eventually withdrawn. Although more than half of enrollees in private sector health plans qualify for HSA contributions, the Employee Benefit Research Institute reports that many HSA owners are not fully utilizing the very real tax saving benefits available.