Investors Fare Differently in Wake of Interest Rate Hike

Thursday, February 23 at 09:30 AM
Category: Personal Finance

What does the interest rate hike mean for consumers?

Consumers have enjoyed years of record-low interest rates that provided borrowers with low repayment options on everything from cars to homes, but the Federal Reserve’s rate hike in December caused some investors to wonder how the rate increase will affect their financial portfolios.

Additionally, the central bank has indicated more rate hikes could be coming as soon as this year. If these hikes happen, rates would begin to move out of the historically low range they have been in for the past decade.

What does this mean for consumers? How will higher interest rates impact investors and consumers who have become accustomed to a low rate environment?

Consumers who have savings accounts, or who invest in certificates of deposit or money market accounts, will earn more on their cash savings. For people dependent upon investment income from these low-risk options, even a modest increase in the rate of return can make an impact.

“Many older Americans, in particular, draw income from Social Security and from the interest they earn on their retirement savings,” said Clay Nickel, director of investment strategy for Arvest Wealth Management. “As long as inflation stays in check, the possibility of a higher rate environment may be welcome news to these people.

“However, rates are likely to increase more slowly than past interest rate hiking cycles by the Federal Reserve. This means it may still be difficult to achieve longer-term financial goals through bank deposits, many of which still yield less than the inflation rate. Savers may need to look to investing in financial markets to meet longer-run objectives.”

Investors who will likely see the biggest negative effect on their money are those who have longer-dated bond holdings such as 30-year and fixed-rate bonds. Ironically, as rates go higher, the value of existing contracts decreases. While investors may not lose money per se, they will see a decline in the value of their bonds compared to what they could have earned prior to rate adjustments.

“Every portfolio is different and there are several factors to consider,” said Scott Phillips, chief investment officer for Arvest Bank. “In a rising interest rate environment, you want the maturity date of the bond to be short. The longer the maturity term, the more its value will fall.”

Phillips said selling longer-term bonds and reinvesting in shorter-term bonds puts investors in more of an offensive position and can help minimize loss for investors who may be considering selling their bonds. Investors who purchase a bond and hold it until maturity may be able to avoid any depreciation in the bond’s value, depending on where interest rates stand when the bond matures.  

Stocks, meanwhile, traditionally gain value during times of rising interest rates.

“Initially, people are fearful that rising interest rates will result in slower economic activity and that it’s not a good idea to invest in the stock market,” said Christopher Magee, senior trust investment officer for Arvest Bank. “Historically, stocks have reacted quite well after a jump in interest rates, but it’s still important for investors to be selective when purchasing stocks, as some sectors will perform better than others.

“Ultimately, every investor is unique with their own goals, timeframes, portfolio mix and risk profile. The important thing for them to know is that after 10 years in an historically low interest rate environment, the Federal Reserve has announced its belief that we will likely see rates slowly moving upward in the next year, so investors need to get with a trusted financial advisor, review their current plan and see what, if any, adjustments they need to make.” 

Tags: Financial Education, Investing, Press Release, Savings
 

Planning a Honeymoon – Save Now or Pay More Later

Monday, February 13 at 10:20 AM
Category: Personal Finance

If a honeymoon is in your plans, you should consider the financial aspects along with all the details of your trip. Those issues are how much the honeymoon is going to cost and how to pay it.

Costs of the Honeymoon
The actual costs will depend on the type of trip you plan. But, probably at a minimum you will have transportation (airfare, car rental or public transportation), accommodations (hotel), meals, activities and souvenirs. 

Save Before You Go or Pay
More Later
The actual cost of your honeymoon will depend on where you go and what you do on your trip, and those decisions are up to you and your soon-to-be spouse. One of the best decisions you can make is to save the money you will need before you go. That way you can enjoy the trip without financial worry.
 
Here is a simple chart showing how much you need to save monthly so you will have what you need before the trip.



Start Your Automatic Savings Today
An easy way to save is with an automatic savings plan. Set up a recurring automatic transfer with your financial institution to transfer the amount you need to save each month into a separate account. You can also have your employer deduct the amount each month directly from your paycheck and deposit it into the account of your choice. 

Paying More Later by Using Your Credit Card 
As tempting as it may be to just charge your entire honeymoon to your credit card, there is a cost to doing so. Weigh those costs with advantages you may have by using your credit card. Benefits could include earning rewards points with every purchase, bonus earning periods like two times points on purchases, and travel benefits such as complimentary auto rental insurance. Rewards points can often be redeemed as cash back towards your credit card statement or towards hotel deals. 

Here is a chart showing what your monthly payments would be to pay off the honeymoon.
 


Conclusions
Your honeymoon should be fun and carefree. Saving before you go can provide the peace of mind knowing that the cost is covered and help you save a bit of money. However, if you use a credit card be sure to understand your rate, understand your payment plan and maximize benefits such as rewards earning opportunities. Consider the following:
  • If you are planning a $7,500 honeymoon and save for 12 months, your total cost will be $7,392 because you will earn some interest.
  • If you return from your $7,500 honeymoon owning that amount on your credit card and pay it off over 12 months, your total cost will be $8,232.
  • If you decide to use your credit card as a financial solution to plan a $7,500 honeymoon and it offers one point for every $1 spent, you would receive 7,500 rewards points. Depending on your credit card rewards rate, this could be equal to at least $75 in points possibly redeemable for cash back or statement credit.  
The decision is yours, but factoring in total costs and benefits will help you minimize honeymoon planning regrets in the long run.
 
Tags: Credit Cards, Financial Education, Savings
 

A Penny Saved is a Penny Earned

Monday, January 23 at 12:25 PM
Category: Personal Finance
Savings can help you achieve financial goals. Whether it’s a comfortable retirement, a down payment for a house, or a new car or laptop, you can get there by setting money aside. And best of all, you can have what you want without getting bogged down in debt.
 
However, if you’re like most people, you don’t save as much as you’d like to. Or, you don’t save at all. Americans spend more than we earn. Today’s high energy, home and food prices may make saving seem less possible than ever. But, the time is now. With a little forethought and effort, saving money is possible.
 
Make Saving a Priority
You’ll be more likely to save money if you make it a priority. Sit down and figure out what you’d like to save money for – retirement, a house, car, college, dream vacation – and how much it will cost. Then make your plan:
  • Set a timeline for when you’d like to reach your goal.
  • Set a schedule by dividing the total goal amount by the number of weeks, months or pay periods between now and your goal date.
  • Be vigilant by treating your savings contribution just like any other must-pay expense, such as rent or groceries.
Find Money to Save
While it may seem difficult sometimes just to make ends meet, chances are you have extra money you didn’t even know about. Here are some ways to find it:
  • Keep track of everything you spend for a week. You might be surprised what you’re buying, and what you can do without.
  • Make purchases with cash. This can help you stick to a budget and avoid impulse purchases. Simply decide ahead of time how much you want to spend and then set aside that amount in cash before you go shopping.
  • Lower your bills. Many creditors will give borrowers a lower interest rate if they’re asked. Also, conserving electricity and gas can make a big difference.
  • Rank your nonessential expenses. Keep the ones you like the best and cut the items on the bottom of the list.
  • Pack a lunch or cook more dinners at home. Eating out at restaurants can eat up a lot of money that could be saved.
Pay Yourself First
You're probably inclined to pay everyone else first – whether it’s your landlord or your grocer or the electric company. But it’s vital to start paying yourself first by saving money. Once you’ve made a contribution to your financial longevity and well-being, then you can divide up your money to cover everything else. Don’t worry. You'll more than likely have plenty left over to cover everything you need.
 
In fact, most banks make this easier. You can have them automatically transfer funds from your checking account to your savings account. You might also check with your employer. Companies will often deduct savings from paychecks if asked.
 
When you make saving a priority, look for money to save and pay yourself first, you set yourself up to meet your savings goals. 
 
Information courtesy of Arvest Money Skills. 

Tags: Budgeting, Financial Education, Savings
 

Don’t Let a College Savings Plan Crack Your Retirement Nest Egg

Wednesday, January 18 at 09:15 AM
Category: Personal Finance

Balancing saving for retirement and saving for your child's college can be tricky. Here are some tips to help you manage both at the same time.

LOWELL, Ark.  Two of the largest savings plans consumers need to fund and manage in their lifetime are saving for their child’s college and for their personal retirement. These are plans that take time to adequately build, but one doesn’t have to negate the other. Both can be managed successfully and simultaneously through early planning.

“Above all, start saving for both as soon as possible,” said Donny Rogers, President of Arvest Bank Trust. “From the moment you get your first job to the moment you learn you’re going to be a parent, set aside money and let it grow.”

Rogers says the balancing act begins with determining how much of the college expense parents want to fund and what other big-ticket expenses they may also cover for their children. 

“It’s smart to focus on saving for college, but the reality is that there are a few other large expenses that require long-term budgeting,” Rogers said. “If you plan on buying your teenager their first car or paying for a daughter’s wedding, you need to factor those expenses into your budget so you segment your savings plans across the board. I always tell parents that it’s fair to require some ‘sweat equity’ from their kids so they contribute to the expense of paying for a car or shouldering a portion of any student loans. There’s no expectation that parents pay 100 percent of all of those expenses.”

A 529 Plan offers a tax-free savings option for college that is specifically earmarked for post-secondary education. These state-specific plans have different rules of engagement but typically can be used to fund expenses from tuition to housing to other necessary items for school. Significant supplemental funding is also available in the form of academic, athletic and arts scholarships.  

While you can borrow for college expenses, you can’t do the same for retirement savings. Therefore, it’s critical to begin saving early for your retirement nest egg and to budget in parallel with other savings priorities. Maximizing an employer’s 401(k) matching option puts “free money” in your account. In the event you need to adjust your savings more heavily toward college, be sure not to reduce your retirement savings below the level of employer matching. It’s recommended that 10 percent of your income be allocated toward retirement every year.

“Regardless of how well you plan, there will inevitably be change and the need for adjustments along the way, and that’s perfectly normal,” Rogers said. “Consistency will reward your efforts when you need to utilize those funds.”

The so-called “catch-up plan” that allows individuals age 50 and over to make extra contributions can help consumers make up for lost ground during the saving process, once college and major expenses have been paid for, but Rogers advises customers not to lean too heavily on that option. He says the number of variables involved in retirement planning can sometimes cause consumers to miss significant savings. Those may include the length of time one plans to work, or is able to work; the kind of lifestyle one wants to lead after retirement; the security of their career and other potential factors or risks.

In addition, the rate of inflation and the rising cost of college tuition will affect how much of an impact savings for college and retirement have on the larger family budget, making that early foundation and steady savings plan even more important in the long run.

Tags: College, Financial Education, Press Release, Retirement, Savings
 

My Money Five

Monday, January 09 at 03:25 PM
Category: Personal Finance

Making the most of your money starts with five building blocks for managing and growing your money  The My Money Five. Keep these five principles in mind as you make day-to-day decisions and plan your financial goals. 

THE FIVE PRINCIPLES

Earn
The earn principle is about more than the amount you are paid through work. This principle is about knowing the fine print and details about your paycheck, including deductions and withholdings. To put it another way: In order to make the most of what you earn, it helps to understand your pay and benefits. Check out* actions you can take and more hints and tips to earn.
 
Save and invest
Saving is a key principle. People who make a habit of saving regularly, even saving small amounts, are well on their way to success. It’s important to open a bank or credit union account so it will be simple and easy for you to save regularly. Then, use your savings to plan for life events and to be ready for unplanned or emergency needs. Check out* actions you can take and more hints and tips to save and invest.    

Protect
The protect principle means taking precautions about your financial situation. It stresses the importance of accumulating savings in case of an emergency, and buying insurance. Be vigilant about identity theft, and keep aware of your credit record and credit score. Check out* actions you can take and more hints and tips to protect yourself.

Spend
The fundamental concept of spend is: make a budget or a plan for using your money wisely. It’s helpful to set short-term and long-term financial goals and manage your money to meet them. Check out* actions you can take and more hints and tips about spending.

Borrow
Sometimes it’s necessary to borrow for major purchases like an education, a car, a house, or maybe even to meet unexpected expenses. Your ability to get a loan generally depends on your credit history, and that depends largely on your track record at repaying what you’ve borrowed in the past and paying your bills on time. So, be careful to keep your credit history strong. Talk to your lender to learn about other considerations that determine loan eligibility. Check out* actions you can take and more hints and tips about borrowing.

As you focus on these foundational money management elements, you’ll be better able to manage your money in both the short term and long term.
 
Information courtesy of Mymoney.gov*.

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Tags: Financial Education, Investing, Lending and Financing, Savings
 

Regional Consumers Made Major Purchases, Planning More

Friday, November 25 at 08:30 AM
Category: Arvest News

Arvest Consumer Sentiment Survey shows spending plans continue to rise.

 FAYETTEVILLE, Ark. – Consumers in the Arkansas, Missouri and Oklahoma region said they have made major household purchases in the last six months and plan to make at least one more major purchase in the next six months, according to final information released today from the Arvest Consumer Sentiment Survey. 

Those are among the more noticeable findings from the third installment of the Fall 2016 Arvest Consumer Sentiment Survey released today. This installment is the final piece of the survey, conducted in March and including Greater Kansas City, and focuses on consumers’ attitudes and behaviors concerning spending, saving and debt.

Most notably, 35 percent of regional respondents indicate that they plan to make major purchases in the next six months, compared with 34 percent in March. The percentage of respondents who report they had made a major household purchase in the past six months rose from 39 percent to 40 percent. Among the remaining 65 percent who do not plan such major purchases in the next six months, 20 percent reported they were waiting for the right time to buy, while 80 percent said they had no plans to buy at all. Major household purchases were defined as furniture, televisions, refrigerators and other large items.

“Consumers may be looking forward to the holiday season with an eye toward buying presents, while continuing household updates they may have been putting off from early in the economic recovery,” Arvest Marketing Director Jason Kincy said. “They seem to be feeling a bit more confident in their personal economies, as their increasing spending plans and slight decrease in current savings rates seem to indicate.”

This was particularly noticeable in Arkansas and Missouri.

“This is the highest level of purchase expectations (in Arkansas) since the Arvest Consumer Sentiment Survey began,” said Kathy Deck, director of the Center for Business and Economic Research (CBER) in the Sam M. Walton College of Business at the University of Arkansas and lead economist for the survey.

David Mitchell, director of the Bureau of Economic Research at Missouri State University, said households in his state “are more optimistic about long-run prospects than they were at this point last year.”

Those feelings were more tempered in Oklahoma, which has been dealing with the effects of a lingering slump in the energy sector.

“As we move into the holiday season, both retailers and governments that rely on the sales tax base for general revenue funds will be watching Oklahoma consumers closely to see just how large of a purchase they will make and just how long they intend to wait before doing so,” said Russell Evans, executive director of the Steven C. Agee Economic Research & Policy Institute at Oklahoma City University.

The percent of respondents who reported having no current consumer debt was 28 percent, up from 22 percent in March. Consumer debt within the region was divided among several categories – mortgage, home equity, auto, credit cards and student loans. In the region overall, more consumers reported having consumer debt in particular categories, with increases in auto loans, which grew from 33 to 35 percent, and credit cards, up from 41 to 44 percent. Student loans remained steady at 21 percent.

When looking at the current savings rate, consumers within the region reported they are saving 13.9 percent of their earnings, which is lower than the 15.8 percent from the previous survey. The overall savings rate for Arkansas is 13.4 percent, while Missouri is at 16.3 percent and Oklahoma 14.1 percent.

The percent of respondents across the region who plan on increasing their rate of savings has risen from 22 to 26 percent since the spring survey.

The Arvest Consumer Sentiment Survey is conducted by the Center for Business and Economic Research in the Sam M. Walton College of Business at the University of Arkansas at Fayetteville. The University of Oklahoma’s Public Opinion Learning Laboratory conducted the 1,200 random online and telephone surveys.

With each study, the Consumer Sentiment Survey Index score will be released first, followed by a second release on consumer outlook, including the Current Conditions Index and the Consumer Expectations Index, which are sub-indexes of the Consumer Sentiment Survey Index.

Arvest Bank’s sponsorship of this survey is due to its desire to provide beneficial data for its customers and communities. The data provides a reading of how consumers are feeling about the economy in the states where the bank operates. Because consumers drive the majority of economic activity, it is important to simply know where people in the state stand in their views. 

Information about the survey and research partners, copies of this release, summary documents and print-ready logos can be found at www.arvestconsumersurvey.com.

Data released as part of the Arvest Consumer Sentiment Survey, summary and news releases is free for broadcast, publication or use in presentations. Please cite “Arvest Consumer Sentiment Survey” as the source each time information is referenced.

Tags: Arkansas, Arvest Consumer Sentiment Survey, Debt, Missouri, Oklahoma, Press Release, Savings

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