Fasten Your Financial Seatbelt
Seatbelts were wildly unpopular when they were introduced, even though they can keep us safe. In today’s economic environment, don’t forget to fasten your financial seatbelt.
Robert McNamara is widely remembered as Lyndon B. Johnson’s Secretary of Defense during the Vietnam War. Love him or hate him, McNamara played a vital role in shaping our nation’s history in Southeast Asia. However, before his role in President Johnson’s White House, McNamara ran Ford Motor Company. He was the first non-Ford family member to have the position.
During his tenure at Ford, the company pioneered the use of seatbelts as an automobile safety measure. Safety belts were wildly unpopular when they were introduced—some prototypes actually fit over your neck rather than your shoulder or lap.
Where am I going with this example? We often ignore safety measures that keep us safe without appreciating their benefits. In fact, we see this in personal financial planning. And in a time of a tight labor market, rising interest rates and volatile markets, we sometimes forget to fasten our seatbelts.
Jobs will be around forever
As I write this, our unemployment rate sits at a remarkably low rate.1 That’s a great thing. Americans have their pick of jobs. Recent graduates likely have multiple offers for their first jobs. It’s a good time to be working.
But if history is a teacher, we know employment is cyclical. Layoffs happen even in good economies. So, strap on your seatbelt—and be sure you’re making career changes when it’s best to do so. We believe a tight labor market is ideal for making a job switch rather than waiting for leaner times.
Rates will go lower
Whether it’s tax rates or interest rates, we usually wish they were lower. For a time, we had wonderfully low borrowing rates. While this created consternation for savers, it was a boon for borrowers. Some borrowers ignored the ultra-low rates of 2020 and 2021 and now face a far more expensive borrowing regime.2
If you locked in great rates, good job. Bonus points for extending the life of that loan, like a 30-year mortgage or a 10-year business loan. Either way, locking in low rates when they appear is like putting a child in a car seat.
By the way, our current tax rates are scheduled to sunset at the end of 2025 and go up.3 This will impact each of us differently, but it certainly creates a financial planning opportunity.
The market doesn’t feel right
“I’m waiting for the market to show me signs it’s recovering.”
None of us possess a crystal ball, so timing the stock market is extremely difficult. However, our markets often go down but virtually never stay down. Yet, as investors, we ignore that “sale” in the market and sometimes wish we could wait until we get the all-clear to invest again. Sadly, this signal never comes, and one stands to miss out on big days of recovery in the market, waiting for the prospect of the future to look brighter.
Don’t ignore that annoying alert your car gives you; click your belt and be a disciplined investor. Your portfolio and financial security will thank you.
1 https://www.npr.org/2022/08/05/1116036160/the-unemployment-rate-fell-to-3-5-matching-its-lowest-level-in-the-last-50-years
2 https://www.fool.com/the-ascent/federal-reserve-interest-rates
3 https://etfdb.com/retirement-income-channel/a-rising-tax-environment-what-to-watch-out-for
ABOUT THE AUTHOR
Justin Peacock
Justin works closely with clients to design wealth management plans that take into account the full spectrum of their career and personal concerns with a specialization in advising law firm partners. Justin earned his MBA from Northwestern University's J.L. Kellogg School of Business and joined BDF in 2011.
