The Dow Jones Industrial Average fell 800 points today, the largest of the year.
The yield on the 30-year Treasury bond hit a record low, and the yield on the 10-year Treasury note has been returning less than the three-month bill creating what pundits refer to as the “inverted yield curve”, an indicator of worsening conditions.
So, what does it all mean? Are we headed for a recession? Is the trade war with China expediting the next downturn? We are long overdue, aren’t we?
There are many questions, and plenty of possible answers. Regardless of whether the next recession comes in the coming months, next year or beyond, the real question is: what does it mean for you and me?
Let’s address a couple of key items.
Investments
If you held financial assets during 2008, you remember all too well how quickly those assets start to drag on you like dead weight. It is completely natural to feel uneasy as financial markets continue to tumble. Stocks are down, bonds are down. If we are headed for a downturn, where is an investor to go?
Consider that, when you are saving and investing in a standard brokerage, IRA, 401k or other account, you are doing so for the long-haul. Also consider that, you are not actually losing any money when things are in freefall. You only lose money in a down market if you actually sell the asset. If you’re 25, 35, or 45 years old, stay calm and ride out the storm. If there is one thing that we can be certain of, it is that the stock market – over the course of time – always goes up. You are far less likely to need the funds prior to any sort of recovery. If you are at or near retirement, recalculate your expected income needs relative to your asset base (retirement accounts, Social Security). If you are unsure or need tailored advice, consider consulting a financial professional.
Mortgage Rates
You’ve likely heard from neighbors, coworkers or others telling you that now is the best time to buy a home or to refinance your existing mortgage. This may very well be true for you, but there are a few things to know and consider.
Yes, interest rates are falling and yes that likely means you can obtain more favorable borrowing terms. If your current 30-year mortgage carries a 5% interest rate, you can now obtain a rate of well under 4% which would save you thousands over the course of the loan. But there are many fees and other costs associated with a refinance, such as a title search, application fees, and closing costs (yes, those again)! If you plan to stay in the house for the next several years or longer, it could be a great move.
For new home buyers, the situation may be a bit more complicated. When rates fall, the value of home prices tends to rise. This is because many people have the same idea…it is time to buy! When considering whether now is the right time to buy, don’t lose sight of the actual amount of home you can afford. The value of homes across much of the U.S. are already quite high. Know your target price, and then factor in how much interest you would save per month in the current environment.
And the bottom line…Control the things you can, and don’t stress about the things you can’t.