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Personal & Financial

It's You Versus the World Economy

Susan Doktor

It's You Versus the World Economy
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Citizens worldwide are feeling the pinch of mounting inflation. How about you? Panic at the pump? Maybe your landlord just informed you that your rent is going up by as much as 40 percent. If you’re younger than 40, this probably is the first time inflation has been top of mind. Back in the 1970s, the situation was far worse. In 1979, the inflation rate reached 12 percent, followed by a staggering 13 percent in 1980. It may be of little consolation to you, but chances are you’re not facing anything like what your parents faced.

You can be a little bit grateful and still in a pickle. Many new attorneys are trying to figure out how to stretch their paychecks or generate more income. Short of taking on a side hustle, investing your money in an asset that yields a high rate of return is one possible solution. However, there are other ways to earn money every month if you take the time to do a little research.

Let’s Start with the Little Things

Have you looked at your checking account lately? Many of us opened our accounts during our college years and haven’t given much thought to them since. The fees your financial institution charges may have seemed nominal when you got that first batch of checks in the mail. But the banking landscape has changed dramatically in the past few years. Who even writes paper checks anymore, right? And financial institutions are offering better deals to position themselves more competitively and earn your checking business.

Opening a new checking account may represent one way to save—and earn—a few bucks every month. Some financial institutions impose a minimum balance requirement even if you have so-called free checking. Fall below it, and they may charge per-transaction fees. Each time you pay your utility or credit card bill online, you may be assessed a fee.

But today, there are accounts that either don’t impose a minimum balance requirement or offer you several free transactions: large enough to meet your bill-paying needs. Other accounts now pay interest on your balance—not much, but every little bit helps. Still, other accounts tempt you with rewards, including cash back on your purchases. Cash back rewards may be limited to specific expense categories. But find one that pays you back when you shop for groceries, and you’re sure to reap some rewards. Other banks give you cash back when you patronize their partner retailers. Want another reason to open a new checking account? Some banks offer you a statement credit when you open a new account—usually once you’ve made a minimum deposit or signed up for direct deposit of your paycheck.

Reward Cards Can Save You Money

Cash back deals aren’t the sole domain of banks. Many credit cards offer cash back rewards when you spend in specific categories. That can be a compelling reason to use your credit card even when you have plenty of cash in the bank to cover your purchases. The trick with using credit cards for everyday expenses is this: pay off your entire balance on time with each statement. Otherwise, the rewards you earn will be erased by the high-interest rates many credit cards charge and late fees.

Then there are the independent rewards apps like Fetch and Ibotta. They’re a little more cumbersome because you may have to upload purchase receipts to receive your rewards. But they’re free to use, so there’s no financial risk to signing up and using them whenever and wherever you can. You can also integrate some rewards apps with Apple Pay, which saves you from uploading your receipts to a separate app.

And the best strategy of all? Stack your cash back accounts, cards, and apps. Take advantage of multiple rewards programs, and your savings can really add up.

Don’t Just Save, Invest

You may be earning a little bit of interest on your checking or savings account. It makes sense to shop around for a better deal. Some high-yield checking accounts pay interest rates up to 25 times higher than traditional checking accounts.

The interest banks are paying on checking and savings balances pale compared to how much you might earn by investing in stocks, bonds, ETFs, and other assets. Invest enough money in your 401K plan to take advantage of any matching contributions your employer may offer. If you’re fortunate enough to have a little disposable income left after paying your monthly expenses, it’s time to consider independent investing.

If you’re an inexperienced investor, start small. And start with lower-risk investments that have proven themselves over time. Mutual funds are one way to limit your exposure because, by definition, they automatically spread your investment dollars across multiple assets. They offer instant diversification of your portfolio. They may not offer the same high ROI as riskier investments, but the chances of your money growing are very good.

Willing to Take More Risk?

All investments come with risk. And sorry to say, most get-rich-quick schemes don’t work. Conservatively speaking, when you invest in high-risk asset classes, it’s good not to invest more than you could stand to lose. But people ignore that advice, and many are glad they did.

So let’s say you could stand to absorb a loss. Where should you put your money? There are more investment options than ever. In 2021, more than 900 initial public offerings (IPOs) were added to the list of publicly traded companies. Sometimes, stepping into an investment at the ground floor level can be rewarding—but only sometimes. During the initial IPO period, buying stocks can be a bit of a roller coaster ride because they can be volatile.

But there’s also a category of stocks deemed “growth stocks” by investment advisors. More importantly, these companies have already demonstrated growth and are poised for growth due to their plans to innovate in a product category, enter new markets, or make other moves that increase their revenue. Investing in growth stocks may be a smart way of diversifying your portfolio without exposing yourself to extreme risk.

New and Not-So-New Asset Classes

Precious Metals

Precious metals are so-called because they’ve been valued since the dawn of traditional economies. Gold, silver, and other precious metals have been traded for millennia. The first gold coins were minted in 560 BC in the Greek state of Lydia. Perhaps more germane to our discussion, though, is that the trading price of gold has increased by around 360 percent over the past 20 years.

But before you call one of those gold investment 800 numbers advertised on the radio, consider that, over the same period, the Dow Jones Industrial Average gained 991 percent. And there are costs associated with owning gold, such as storage fees and fees paid to gold custodians if you hold your gold within an IRA. You won’t earn dividends on your gold investment, either. Over the years, some financial advisors have recommended investing in gold to protect your savings against inflation. But Russ Karban, a Certified Financial Planner® at Savage and Associates who has spent three decades providing investment advice, notes that gold’s positive correlation to inflation has significantly reduced over the past 10 to 15 years. That makes investing in gold a less effective inflation hedge as of late. But just like any investment decision, purchasing any asset should be seen in context. Investors should consider their overall portfolio risk to formulate a well-diversified allocation, built with one’s long-term goals in mind.”

Cryptocurrency

But all that is ancient history. More recently, the news has been brimming with cryptocurrency stories. Some qualify as rags-to-riches tales, while others report on the volatility of the cryptocurrency market. The former has mostly to do with people who bought cryptocurrencies when they first appeared on the scene. Those people saw their investments increase by unprecedented numbers. Here’s one example. Between 2010 and 2020, the value of Bitcoin has increased by a jaw-dropping 900 percent. But even those who came late to the party left with a prize. Last year, the total market value of cryptocurrency increased by a hardly shabby 187.5 percent. Given the high return on investment many crypto investors have earned, it’s not surprising that cryptocurrency ownership has taken off. You probably know a bunch of crypto owners yourself. Even an uncertain COVID-era economy didn’t deter them. About 52 percent of crypto investors jumped into the market in 2021.

Given its remarkable performance history and, by now, its mainstream popularity, should you be stashing your assets in a crypto wallet? Veteran advisor Russ Karban urges investors to look at all angles. “Know your own boundaries and how much risk you can tolerate,“ he advises. “The volatility of cryptocurrencies may not set well with the risk-averse.” Karban advises you to take advantage of the risk tolerance questionnaires various investment companies offer their clients. You may have taken one when you started a 401K plan. If your life circumstances have changed, it may be time to retake it. While Bitcoin has performed well over the long haul, it lost 30 percent of its value overnight just a few months ago. Ask yourself, how would you feel waking up to that news?

Karban points out that if you’re saving for your retirement, you may not be able to incorporate cryptocurrency into your regular retirement investment vehicles. “Very few employer-sponsored 401Ks offer crypto investment options. The majority of IRA custodians aren’t credentialed as crypto custodians.” Independent investing in cryptocurrency doesn’t have the same tax advantages as 401K and IRA deposits and earnings. And your deposits don’t earn you any matching contributions from your employer, either. Karban advises clients to weigh these disadvantages and the potentially large gains of cryptocurrency investing.

Crafting Your Inflation Protection Plan

You can’t control global economic forces alone, of course. There are plenty of tactics, ranging from the timid to the bold, to mitigate the effects of inflation on your financial position and lifestyle. Take the small steps, like finding a more rewarding checking account or credit card. That’s easy. But also put a bit more elbow grease into building an inflation-oriented financial plan. Particularly if you’re new to investing, seek out some professional advice. Whether the financial winds are exceedingly fair or foul, reassess your strategy periodically to be sure you’re taking every opportunity to solidify your financial position.