With the chaos in our nation’s capital showing no signs of ending soon, this could be your opportunity to score in some areas of fixed income. With Washington spending in question for the new fiscal year, and given that 2024 is an election year, there’s good reason to think that spending cuts are not really on the table. In fact, it’s very likely we will be facing either a continuing resolution or a shutdown in November just in time for Thanksgiving week.
A shutdown doesn’t bode well for our nation and economy as a whole, but ironically, it may for savers. Rates on mortgages, loans, cars, and credit cards continue marching higher. With revised jobs numbers and continuing low unemployment, the Fed may see fit to do another rate hike this quarter. If they do, rates will likely move even higher on these products.
So how does this bad news help you? Better rates on savings and fixed income is how it helps. For those with cash, now is the time to make sure you are holding that cash in a high-yield savings account. In fact, if your bank doesn’t pay much interest on your savings, start shopping for a high-yield savings account. Generally speaking, your emergency fund should always be held in a high-yield savings account.
Money market funds, treasuries, high-yield savings, and bonds are anticipated to deliver higher returns. When the government is in chaos mode and unable (or unwilling) to cut spending and pass a budget for the fiscal year, rates on fixed income tend to move higher. Throw in an election year, dysfunctional Congress, and the Fed continuing its rate tightening and you have an environment in which fixed income returns generally increase. It seems right now, that this is the general course for at least the next year or so.
Please note that going into detail regarding each of the instruments mentioned in this blog post could fill volumes. This is a general reminder that you may have a bright spot of earnings opportunity for your cash during the chaotic shenanigans in Washington, D.C. The longer the shenanigans last, the more the government spends, and the more the Fed raises rates, the better it can be for savers.
Whether you should be moving more than your emergency savings into a high-yield or money market account is a discussion you need to have with your financial planner. For some, you may be in a position to capitalize on treasuries. Others may want to look at CD laddering, bonds, or treasuries. Everyone’s situation is different and there’s no one-size fits all approach. As of this writing, for example, in the first week of October 2023, high-yield savings rates are in the 4%-5% range and treasuries are generally paying over 4%.
If you are in need of a cash review and fixed income plan for that portion of your portfolio, let me know. As an independent Certified Financial Planner™, I can help you analyze your need, target your goal, and make a plan. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #stressfree #treasury #bond #highyield #gameplan #staythecourse #invest