When real estate is lacking the stability (or lacking at least the certainty of rising rapidly in value as it had been until last year) and mortgages are more difficult and expensive to take on, I notice friends of ours with capital and uncertainty how/where/when to deploy it. Stocks are experiencing some volatility as well, and when the conversation of inflation arises, people are hesitant to keep funds in their bank account for fear it could “devalue” or lose purchasing power.
Depending on the risk tolerance and the short- and long-term plans of the individual I’m speaking with, there are several ways to approach this. Here are a few ideas I’ve recommended to others and seen them experience success with all of them.
1. Keep saving.
2. Getting rid of high-interest debt (especially consumer debt) is paramount. Start with the credit cards, work your way down to the lines of credit. This is not to say everyone needs to find a way to pay everything off but limiting exposure to slow financial ‘bleeding’ is wise. Take inventory of where you’re paying interest on things. This could involve putting holds on a few other things, like vacations or other large purchases that can’t immediately be paid for in full. Earning even 5% or 8% on money anywhere right now (which few people are managing to do) is irrelevant if your debt is financed at rates higher than that.
3. Tackle your vehicle loans. Some auto loans aren’t terrible if the terms are favorable. But calculate what your actual money going out the door monthly is for a vehicle, then multiply it by the number of payments/installments to be made over the entire term of your loan. You might be surprised how much that vehicle will cost you to pay off.
4. GIC’s or other high-interest options through your bank. Long-term, not a terrific investment strategy. But a very low-risk way to hedge a bit better against inflation.