SAN ANTONIO – Interest rates, savings, mortgages, a lot is happening in the financial world that may significantly impact you and your family.
Mannik Dhillon, President of VictoryShares and Solution for Victory Capital, joined Leading SA this weekend to break it all down and advise families who have college in their future.
“You know, we’ve been feeling the impact everyone has of inflation for some time now, right. Where prices have gone up pretty quickly, in fact, post the COVID environment. And that’s what the Fed is trying to combat. They’re trying to dampen or control that inflation. And the way they do that is by increasing interest rates. And the way that happens is that that makes it more costly for individuals and companies to borrow money. So that means you tend to spend less, invest less, and that helps control demand and brings prices down. But on the flip side of whatever impact interest rates can have, you have to look back and say the goal is to bring down inflation, which was very painful also,” Dhillon said.
Dhillon said the real estate market has seen the impacts of higher interest rates through the rising mortgage rates.
“With increasing interest rates, the cost to borrow goes up, and that’s for any type of purchase really that you’re borrowing money for. And the home is often the largest purchase that a family can make. So interest rates have gone up. And what this does is it makes buying a new home more expensive than it was perhaps two years ago, for example. It’s something to pay attention to. So for the same amount of money, you can afford less of a house or potentially folks and families are waiting, waiting longer, waiting for maybe prices to come down or interest rates to come down before they make that purchase,” Dhillon said.
But, right now with economic uncertainty, there may be a silver lining.
Dhillon said that savings rates and money market rates haven’t been as high as a result of the financial climate.
“In most situations, there is a positive to take to extract from it. Right. And one of those is that savings rates and money market rates haven’t been as high as they are now for quite some time. So actually taking cash, if you have some if you save a little bit of cash, you got the rainy day fund, you can actually earn a nice yield or interest rate return on it. And what like money markets are generally really risk-free investments. So a lot of conversations we’re having with clients are about what to do with that little bit of cash that you might have saved up in the last couple of years, how to put it to work for you around money markets, short-term bond funds, things like that,” Dhillon said.
And for so many families, college is the largest expense, but there are easy ways to start preparing in advance and make those costs more manageable.
Dhillon suggests investing in and setting up a college savings plan to combat inflation impacts on tuition bills.
“Inflation leads to more expensive tuition bills over time. A college savings plan is a great tool to help combat that because it can participate in increasing prices in stocks and bonds as inflation starts to pick up. So you can try to keep pace. And the best way to do that is in a consistent way. So a lot of our clients, we talk to them about using what’s called an automatic investment plan. So that way you’re not having to time the market and whether you’re saving for college or retirement and just continuously put a little bit of money to work every month, every quarter. And that way you can enter and save in a more smooth aspect over time. And so a college savings plan can be a great way to combat what inflation does to tuition bills,” Dhillon said