Money Management

It’s important to stay the course. 

Will a recession hit in 2023? Last year, many financial experts seemed convinced that the economy would tank this year. But recent data, like strong jobs numbers, seem to say otherwise.

In fact, JPMorgan CEO Jamie Dimon, who was very vocal about sounding recession warnings in 2022, recently told CNBC he’s not as convinced that a near-term recession is about to hit.

“The U.S. economy right now is doing quite well,” he said. “Consumers have a lot of money. They’re spending it. Jobs are plentiful.”

Of course, things could take a turn for the worse at some point in 2023. The Federal Reserve isn’t done fighting inflation, and if the central bank keeps raising interest rates, consumer spending might wane in the wake of higher loan and credit card borrowing costs. And if spending declines enough, a recession could be the end result.

That might raise the question: Should you keep investing if a recession strikes the economy? Or should you hold off until things settle down? And the answer is, it depends on how you’re specifically impacted by a recession.

When money gets tight

The scary thing about recessions is that they can lead to rampant job loss. If you were to lose your job in a recession, you might have to stop investing for a while to make sure your basic needs are covered in the absence of a paycheck.

Now ideally, you’d have cash in a savings account to tap in that situation, too. But it could be wise to cut back on investing, or stop completely, if you’re pulling money from savings to pay for basic necessities.

When your job isn’t affected

While a recession could lead to an uptick in unemployment, that doesn’t necessarily mean you’ll lose your job. And if you don’t, and your finances aren’t impacted, then there’s no reason to stop investing.

The more time you give the money in your IRA or brokerage account to grow, the more wealth you stand to accumulate. So if you’re able to keep pumping money into one of these accounts, it pays to do so.

Furthermore, while stock market dips and recessions don’t always go hand in hand, they often do. And investing in a down market is actually a great way to grow wealth.

Let’s say you normally buy two shares of a given company at $100 apiece each month. If the value of those shares drops to $80, you have a prime opportunity to scoop them up at a discount. And so if you have the money to invest, there’s no reason not to.

We don’t know what 2023 has in store for the U.S. economy. The general sentiment now seems to be more optimistic than it was during the latter half of 2022. But things could still take a turn for the worse. And if that happens, you should put your immediate needs before your investments. But if you’re not hurt financially in any way by a recession, then there’s no reason not to keep investing if that’s something you’re accustomed to doing.

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The red-hot rental market may finally be cooling down. 

Rent was one of many costs that soared to record highs last year. Median rent tipped over $2,000 for the first time in May 2022, according to Redfin data. For renters, those dramatic increases in housing costs came on top of sky-high prices for other essentials such as gas and groceries.

But things could be about to change. In fact, we’re already seeing a slowdown in the pace of rent increases. Redfin says December saw the smallest year-over-year increase in rental costs since July 2021. At $1,979, the median rent in December was 1.4% less than November. Even so, it’s still 4.8% more than the year before.

Why rental prices might fall

If you’re a renter hoping for some respite, supply and demand are on your side. In some areas, it looks like there’ll be more available rental properties as well as less competition for rentals. Experts say this could mean there’s light at the end of the tunnel for rental costs — at least in some parts of the country.

Demand for rentals is falling

The current economic uncertainty has had an impact on rental demand. Concerns about potential job loss or financial hardship make people more reluctant to, say, move from a shared place or move out if they’re living with parents.

Real estate technology platform RealPage says people aren’t as interested in new rental properties right now. In fact, net demand for rental properties has just turned negative for the first time in over a decade.

In a press release, RealPage said, “After an historic wave of household formation and relocations in 2021, Americans chose to mostly stay put in 2022.” It blamed high inflation and low consumer confidence and pointed out that demand for new leases had all but evaporated.

There are more rentals on the market

Another key factor? Thousands of apartment units are under construction. There are almost a million units being built right now, which RealPage says is the highest number on record. Development is highest in Dallas, Phoenix, New York, Austin, and Atlanta.

Given that it’s not in landlords’ interests to leave apartments unoccupied, this flood of new rentals could force them to reduce rents to get people to move in. At the very least, it will be harder to convince potential tenants to agree to pay higher prices.

How to reduce your rental costs

Many financial experts recommend you don’t spend more than 30% of your income on housing costs. In theory, that will give you enough cash to cover your other living costs and still stash money into a savings account or investment account for the future. However, it can be easier said than done in the current market. Harvard research shows nearly a third of American households spend more than 30% on housing.

If your rent is eating into your living costs, don’t wait for prices to come down. See if any of the following steps could help lower your housing costs.

Share with roommates

It isn’t always fun to share your living space, but it can make a big difference to your bottom line. Not only will your rent cost less, but you can also split the utility bills and other household expenses. Be sure to interview potential roomies carefully, particularly on the finance front.

Show you’ll be a good tenant

Think about what landlords want and how you might use these factors to demonstrate your credentials. For example, it’s a hassle to find new tenants, so you could offer to sign a longer lease. You could also offer to pay your rent early or pay extra upfront, taking away another potential headache.

Look for a more affordable location

If you’re willing to compromise on location, you can snag some significant savings. That doesn’t mean you have to live somewhere you don’t feel safe. But perhaps you can compromise on commuting times or local amenities to reduce the pressure on your bank account.

Offer your skills

If you know how to fix things around the house or are willing to help out with building administration, you could swing a rent reduction. Speak to your landlord about ways you might reduce their workload in exchange for a lower rent.

Bottom line

If rental prices do go down, it will bring relief to the millions of Americans who spend a large chunk of their incomes keeping a roof over their heads. However, it’s hard to be sure about what might happen to the economy next year, as economists’ predictions vary wildly. We may not enter a recession and rental costs may not fall.

All the same, if you’re able to wait a little before signing a new rental agreement, it could be worthwhile. The combination of falling demand and increased supply may mean lower rents, especially if you live in an area where there’s a lot of construction. Put simply, locking in a lower monthly rent could mean you have more money to spend on other things.

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Your balance might bounce around more than usual. 

If you’ve been investing in stocks for long enough, you’re no doubt aware that the market can be extremely volatile. Often, all it takes is a single piece of economic news for stock values to make a big move. And heck, sometimes, even positive economic news can lead stocks to plummet. In recent months, for example, we’ve seen stock values plunge on the heels of positive jobs data, because strong job numbers are an indication that the problem of inflation is likely to persist.

And speaking of inflation, well, it’s hardly a secret that it’s been hurting consumers for well over a year now. And since the latter part of 2021, many people have had no choice but to rack up debt on their credit cards and raid their savings to cope with higher living costs.

Meanwhile, the Bureau of Labor Statistics just released its February Consumer Price Index (CPI) reading. That index measures changes in the cost of common goods, from groceries to car prices.

The good news is that on an annual basis, inflation fell from 6.4% in January to 6% in February. But on a monthly basis, inflation rose 0.4% in February. And that news might be enough to cause extra volatility in stock prices, especially today and this week.

If that happens, though, there’s no need to panic. Really.

Don’t let stock market volatility shake you

This week has already been a rocky one for stock investors in the wake of Silicon Valley Bank’s collapse late last week. While stock prices are higher today so far, the inflation report could weigh on stock values throughout the rest of the week. We’re already off the intra-day highs.

For one thing, some investors might get spooked over the 0.4% monthly uptick in inflation shown for February. And while a drop from an annual inflation rate of 6.4% to 6% is positive movement, 6% is still a glaringly high level for inflation to be sitting at.

In fact, February’s CPI numbers are likely to drive the Fed to continue with its interest rate hikes. And that alone could lead to lower stock values.

But if your brokerage account balance moves more than normal today, try to remember that it’s only temporary. The stock market tends to be very reactive to news in the short-term, but for most investors, it’s the long-term that matters.

Look at the big picture

Any time you invest money, it’s best to do so on a long-term basis. That allows you to ride out periods of market turbulence and, ideally, ultimately come out ahead.

While we’re in the midst of a shaky week for the market, it’s fair to say that 2023 might be a tricky year for investors in general. There’s still the problem of raging inflation and the uncertainty of a possible recession to grapple with.

But if you take a long-term approach to investing, the events of 2023 may not matter all that much in the grand scheme of things. In fact, if you have no plans to liquidate your stock portfolio for another decade or more, then you may not even want to bother checking your brokerage account balance all that frequently.

Sure, you can check in once a quarter, namely just to make sure your portfolio is as balanced as you think it is. But don’t sweat day-to-day movement in your brokerage account.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Saving here could really work to your benefit. 

It’s important to have money in savings for your retirement. Once you stop working, you can’t assume you’ll be able to get by on Social Security benefits alone. Right now, those benefits only pay the average recipient $1,827 a month. And while the average future benefit is apt to be higher due to inflation, it still likely won’t cover all of your senior living costs in full.

Rather, you’ll most likely need to supplement those benefits with another income source, like withdrawals from an IRA account. But if you’re going to make an effort to save for retirement, then it’s a good idea to choose an account that gives you the most flexibility. Here’s why Roth IRAs fit that bill.

1. You’ll enjoy tax-free gains and withdrawals

If you’ve ever sold stocks at a profit in a brokerage account, you may have been forced to pay taxes on your capital gains. With a Roth IRA, those taxes won’t come into play. Neither will taxes on your withdrawals. Rather, withdrawals will be yours to enjoy free and clear of taxes. And that could really be helpful in retirement.

Many seniors find that money is tight once they stop working and are forced to live on a combination of Social Security income and savings. So not losing a chunk of your income to taxes could give you more financial breathing room.

2. You can remove your principal contributions without penalty

The purpose of saving in a Roth IRA is to set yourself up for a secure retirement. So it’s generally best to leave your money in your account rather than take withdrawals ahead of retirement.

But sometimes, emergencies happen. You might need $5,000 for a home repair you can’t put off, and you may not want to rack up debt in the course of paying that bill.

Roth IRAs won’t penalize you for removing your principal contributions ahead of retirement, whereas traditional IRAs will. The reason? You don’t get a tax break on your contributions in a Roth IRA, so there’s no penalty for taking your money out.

But to be clear, this rule only applies to the principal portion of your Roth IRA. If you contribute $10,000 and it grows to $15,000, you can’t touch the $5,000 gains portion or you will be penalized.

3. You won’t face required minimum distributions

With a traditional IRA, you must start taking required minimum distributions (RMDs) in your 70s. This means you have to remove a portion of your savings each year or otherwise face penalties.

Up until recently, Roth IRAs were the only tax-advantaged savings plan to not impose RMDs. Thanks to a recent change, Roth 401(k)s also won’t require them starting in 2024. But either way, if you don’t want to be told what to do with your money, then a Roth IRA is a solid bet.

When it comes to finding a home for your retirement savings, you have plenty of options. But choosing a Roth IRA could benefit you in more ways than one.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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