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2020 – 2021. Oh what a year it’s been! Who could have predicted any of the events that have unfolded? The virus, the forced vacations (lockdowns), the variant, the “vaccine” …. the past 12 months have been exhausting. And now I think there’s volatility to follow.
Interest rates have been at historical lows and asset prices have risen rapidly. We have also seen the fear of missing out (FOMO) drive house prices to record levels and no one can predict what will happen next.
If I were a gambling man, I would bet on interest rates heading up. At present you can fix mortgages below 3%. If you have a $500,000 mortgage and interest rates go up to 5%, your interest rate bill just increased by $833 per month. In a world of low interest rates, borrowing makes logical sense but make sure you can afford the increased monthly mortgage bills when they arrive!
It is human nature to project more growth on the back of the past and when things are good, people naturally predict it to always be good. As we saw in March 2020, when things are bad, it is also natural to predict things to get worse. The fact is it is somewhere between.
We have seen an amazing share market recovery but now it looks like ongoing market volatility comes next. All my reading tells me that full employment, strong retail spending and inflation equals increasing interest rates. And this means economic pain – and none of us are immune to that.
My advice is to build a war chest. Start budgeting and put the credit card away. If there’s one lesson I’ve learnt, it’s that cash is king in uncertain times.
Give us a call at WealthDesign. We’re here to help you navigate the upcoming “Vs.” Yes there may be volatility ahead, but if you have a robust plan in place, you’ll be prepared to make the most of the ups and downs as they appear.
WealthDesign – a life well planned