The Federal Reserve cut rates by half a percentage point yesterday. That's good news for consumers. We're here with top tips on the best money moves right now.
1: Borrow Wisely
Rate cuts are great for borrowers. And if you are thinking about refinancing, there's no better time than the present to start doing your homework. 30-year fixed mortgage rates are at their lowest level in two years.
Plus, if you live in a high cost area like California or New York, you may benefit from an increase in the conforming loan limit that's proposed in the new stimulus package says Robert Brokamp of Fool.com.
If this passes, it means the maximum jumbo mortgage loan will rise to as much as $729,750 in some areas while government-sponsored enterprises Fannie Mae and Freddie Mac will guarantee those loans.
2: Protect your savings
Rate cuts may be great for borrowers, but they're not great for savers. If you have some money tucked away in a savings or a money market account, your interest rate will probably take a hit. If you have a CD that will be maturing soon, you'll also be seeing lower interest rates.
Right now the interest on an average one-year CD is below 4%. And it's likely that average will fall even further. So it's your responsibility to find the best savings tools.
For starters, you're going to have to shop around if you want to find the best rates. Check out your local bank, but make sure to go online to Bankrate.com or search for credit unions to find other opportunities. Cast a wide net to find the best opportunities.
3: Grab the Opportunities
Your money market or savings account should be a temporary parking place for your cash says Greg McBride of Bankrate.com.
Once you have your emergency cushion stowed away, now is an opportune time to move out of savings and into longer-term investments like stocks.
If you have a long-term perspective, start looking at broad-based index funds like the ones offered by Vanguard or Fidelity. This is an inexpensive way to get access to the stock market.
Even though the market may seem like a roller coaster, if you have twenty or thirty years to retirement, you're going to come out ahead.
Remember, it's not worth your while to try and time the market. If anything, focus on minimizing the fees that eat into your returns.
4: Mix it up
These folks who have the most to lose since their goal is about saving, not borrowing. The best defense there is a diversified portfolio. Make sure you have a mix of stocks, bonds and international funds.
In the end, you never really know how the market will react to what the Fed does (or to anything else, for that matter). Rather than trying to play a guessing game that you'll be lucky to get right, it's better to keep your portfolio well diversified so it's ready for any environment.
Check out Morningstar.com's Instant X-Ray feature to help you see if you're making unintended bets on any one area of the market. You may also want to consult a fee-only financial planner to help you plan out your goals.
"If you alter your allocation mix based on volatility, it's a recipe for underperformance," says McBride.