6 Tips and Tricks for Borrowing Money and Investing in Today's Economy

Make smart moves as interest rates fall, while the stock market remains unpredictable

Karen Hube,

AARP

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Published December 09, 2024

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The economy is a bit of a mixed bag these days. Thanks to lower interest rates, it's a cheap time to borrow money. Savers, on the other hand, stand to earn less on safe, interest-bearing investments such as certificates of deposit and money market accounts.

Then there's the stock market, which has seen its share of ups and downs this year. Given these fluctuations, now could be a good time to rebalance your investment portfolio.

Here's what you need to know about borrowing and investing in today's economy.

How to take advantage of lower interest rates

The Fed cut its benchmark rate by a half-point in September and another quarter-point in November. Declining interest rates can bring welcome relief for people aiming to consolidate debt, refinance a mortgage or apply for a loan. But there’s a flip side: Savers will earn less on low-risk investments such as certificates of deposit and money market accounts.

Here are three ways you can capitalize on lower interest rates:

Lock in top savings rates. If you have cash on hand, don’t wait to put it in a CD, says Mark Hamrick, a senior economic analyst at Bankrate. The average yield on a 12-month CD was at 1.75 percent in early November, but online banks typically pay more. Consider the yield in early November on a 12-month CD offered by the online bank Marcus by Goldman Sachs: 4.2 percent. “I can’t stress enough: Shop around,” says Jacob Channel, senior economist for LendingTree.

Weigh mortgage options. If you have been waiting to buy a home — or if you’re helping a child with his or her first purchase — this is a better time to jump in than a year ago. But it could still pay to wait a little longer. The average 30-year mortgage rate has dropped from a peak of 7.8 percent in October 2023 to 6.69 percent as of early December, and it’s likely to fall further. “It won’t drop to near the 3 percent we saw during the pandemic, but will probably go to the mid-5-percent range,” Channel says.

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Tackle credit card debt. It typically takes more than a couple Fed rate cuts for credit card interest rates to fall noticeably. The average remains at nearly 25 percent, compared to 16.28 percent in 2020. “The best advice is to pay off your balance regularly,” says Channel, adding that this can boost your credit score and enable you to take advantage of better deals when they come

How to navigate a volatile stock market

As of early December, the S&P 500 was up by more than 26 percent this year. But it’s been a wild ride. In August, the CBOE Volatility Index (VIX), a measure of how frequently and widely stock prices swing, hit its highest level since the COVID-related stock market collapse of March 2020, mainly because of concerns about the economy and geopolitical issues. “But if you focus on things you can control, instead of things you can’t, you can minimize your stress level,” says Gretchen Hollstein, a senior adviser at Litman Gregory Wealth Management.

Here are three ways to weather the market in these uncertain times:

Hedge your bets. Diversify across small, medium and large stocks, and different sectors. This way, when one stock or sector goes down, another may go up, potentially evening out portfolio performance. “Trying to pick the one stock or sector you think will win, and over-allocating to it, just isn’t prudent. It’s proven to be a loser’s game,” says David Johnston, managing partner at Amwell Ridge Wealth Management in Flemington, New Jersey. And think of your stocks as three- to five-year investments, at a minimum. This will help you resist checking in on their short-term fluctuations, says Lisa Policare, an adviser at Ameriprise.

Rebalance your portfolio. Every few months, check your investment mix. A portfolio’s weightings of stocks, bonds and other investments shift, and over time will skew toward the better-performing asset classes. That sounds good, but it may not prepare you for downturns. “You may have more risk than you intend,” Johnston says. “Be sure to take chips off the table by rebalancing if that’s the case.”

Tune out daily market chatter. Around-the-clock market news fuels anxiety, Johnston says. “Don’t be concerned about daily ups and downs. It can drive you nuts. Turn off the TV and live your life. I promise, you’ll feel better.”