Every year brings changes that can impact the ways financial markets perform — and your ability to save and grow your money. So it pays to understand how these developments will impact you now and how they’ll affect your financial goals.
Here are three changes that will likely have a direct impact on your finances in 2016.
1. Higher interest rates. The Federal Reserve raised short-term interest rates from 0.25 percent to 0.50 percent, the first such move since the financial crisis began in 2008. The Fed increases interest rates when it sees the U.S. economy improving.
While it’s impossible to know the Fed’s direction from here, much of its decision will depend on the health of the U.S. economy.
According to The New York Times, indicators such as unemployment figures and inflation rates assist in the Fed’s opinions. Global market volatility also impacts U.S. markets, so the Fed will maintain or move rates up or down accordingly.
So how does this impact you? A rise in interest rates can be a short-term knock for stocks and bonds. Higher rates can make cash a more attractive investment option relative to bonds and stocks, and the higher interest rates at which companies are forced to borrow can flow to their bottom lines, reducing profits.
The biggest impact of higher rates is on borrowers with adjustable-rate debt. A general rule of thumb when the Fed raises rates is that yields on savings and investments will improve, while the cost of debt and the finance charges tied to variable-rate credit cards will increase. So, when possible, prioritize paying off high-interest debt.
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SOURCE: CNBC
Jon Stein
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