Worried about the Fed’s latest rate hike? Here’s what advisors say about managing your money

Personal finance

The Marriner S. Eccles Federal Reserve Board Building in Washington, D.C.
Sarah Silbiger | Reuters

The Federal Reserve on Wednesday hiked its benchmark interest rate by 0.75 percentage points, the largest increase in nearly three decades.

It’s the latest move from the U.S. central bank to combat the highest inflation in roughly 40 years, which has pushed up the price of nearly all consumer goods and services including groceries, gasoline, cars and housing.

The stock market reacted positively to the aggressive action from the Fed. The Dow Jones Industrial Average closed more than 500 points higher on Wednesday, and both the S&P 500 Index and the tech-heavy Nasdaq Composite also ended the day higher on the news.

While the market moves are positive for investors, they are still dealing with a complicated backdrop that’s likely to continue to whiplash asset prices going forward. Earlier in the week, the S&P 500 fell into bear market territory, meaning a drop of 20% from its most recent high.

And, while the Fed is working to combat inflation, there’s still a lot of economic uncertainty ahead. That can lead to a lot of stress for investors, even ones that with long-term time horizons.

“We are certainly not immune to this,” said certified financial planner Brad Klontz, author of “Mind Over Money” and co-founder of the Financial Psychology Institute. He was speaking at the CNBC Financial Advisor Summit.

Manage investing stress

Instead of getting stuck worrying about the recent market moves, Klontz suggests looking at performance over a much longer period of time to help ease nerves.

“When we become emotionally charged, we become rationally challenged,” said Klontz, adding that when this happens, people make what can be costly mistakes with their money. “We have to be able to calm ourselves by widening out that frame of reference to see things more clearly.”

Dan Egan, vice president of behavioral finance and investing at Betterment, agreed, noting that keeping an eye towards future goals can also help investors cope with stress in volatile markets.

“That focus on the future is very powerful,” he said at the summit.

To be sure, while the actions of the Fed are important, financial advisors and investors shouldn’t be making any decisions with their money solely around the central bank, said summit participant Douglas Boneparth, CFP and president of Bone Fide Wealth in New York.

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“If you’re building financial plans strictly around what the Fed is saying, I’m not sure you’re building solid financial plans,” he said, adding that financial advisors need to make sure their clients understand the bigger picture.

“It always comes down to helping people understand what they can’t control versus what they can,” he said.

Still, if you’re seeing your portfolio decline and it’s keeping you up at night, it may be time to rebalance your portfolio, according to Stacy Francis, CFP, president and CEO of Francis Financial in New York, and also a summit attendee.

“We need to put a new pair of glasses on and look at that portfolio and make sure that the risk that’s in it is appropriate,” she said.

The day to day

It’s also important to manage investing with dealing with the impact of inflation on day to day expenses.

“While interest rates are needed to cool the economy and bring down inflation, that 75-basis-point increase and further expected in the future means debt is more expensive,” Francis said.

That means that people may also struggle with loans for bigger expenses, such as houses, cars and college, while seeing higher prices for every day items such as gasoline and food.

Hopefully, people have been take preventative action to pay down debt and adjust their cash flow for the current environment, said CFP Lazetta Rainey Braxton.

Braxton is the co-CEO and senior financial planner at 2050 Wealth Partners in Brooklyn, New York.

If they didn’t, they’ll have to accept what’s happening now and make some trade-offs, she said. That includes potentially scaling back on lifestyle creep that might have happened when times were better, potentially asking for a raise at work or even considering moving in with family or downsizing to combat higher housing prices.

“There’s going to be some consolidation that happens with families,” she said. “Some are in survival mode; unfortunately, that’s the case.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

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