It was a time of big hair, shoulder pads and the Cold War. But something often less thought of when feeling nostalgic about the ‘80s, was the interest rates that were high enough to make you dizzy.
“The interest rates started the decade around 20%,” says Brad Lyons, a certified financial planner and an investment manager at Wiser Wealth Management based in Georgia. “They had [raised] them dramatically in the late 70s… trying to deal with inflation.”
Lyons was in his early 20s at the start of the 1980s. And though today’s interest rates still look small in comparison, there’s a lot that can be learned from people who’ve been through it.
Consumer prices are 8.5% higher than they were a year ago, according to July’s inflation numbers. In June, it was 9.1%. Rates like these haven’t been seen in decades.
And people who remember the ridiculously high interest rates that followed the high inflation of the 70s say buckle down and be prudent, because we’re in for a long haul.
‘Imagine you are laid off’: Suze Orman’s tough-love tips to prepare for the recession ahead
A TikToker paid off $17,000 in credit card debt by ‘cash stuffing’ — can it work for you?
What do Ashton Kutcher and a Nobel Prize-winning economist have in common? An investing app that turns spare change into a diversified portfolio
Experts have drawn parallels between the high inflation of five decades ago and what’s happening today.
Back then, there were several factors that played into it, low unemployment, the removal of the gold standard (the monetary system in which a currency is backed by gold), but energy prices pushed things to their limit.
In 1973 the price of oil nearly quadrupled when the Organization of the Petroleum Exporting Countries’ (OPEC) enforced an oil embargo on the west for supporting Israel in the Yom Kippur War. There was a series of knock-on effects that caused inflation and stagnation to swell. Then, the Iranian Revolution at the end of the decade sent oil prices surging again.
By 1980, inflation was at 14.5% and unemployment hit 7%. The Federal Reserve hiked its federal funds rate to a whopping 17% (for comparison, it’s currently at 2.25-2.5%).
The high interest rate made getting ahead almost impossible, says Mike Drak, who was a banker at the time. He remembers his mortgage rate was 17.5% at the time.
“Rates were going up, it was almost monthly, they were increasing,” Drak says. “So it seemed like it was something that that didn’t seem like it was ever going to stop. And I remember saying at one point, ‘if I could ever find one day where I could find a mortgage rate for 10%, I’d be the happiest person in the world.”
Drak is the author of Victory Lap Retirement and Retirement Heaven or Hell: Which Will You Choose and a senior contributor at Booming Encore, a finance blog focused on the baby boomer generation.
Debt at that time rose quickly, says Drak – on houses, on credit cards and on vehicles.
“It was tough, scary times. But we were lucky because we could work. So our wages kept increasing – not at the same pace – but it necessitated both people working to help pay down debt.”
One of the most important things you can do during times of high interest is pay down debt, he says. His goal then, was to pay down his mortgage, which wasn’t easy.
“You have to have a lot of discipline, you’d have to say I want to make lump sum additions annually on it, because the interest rate was crushing and I didn’t want to be trapped.”
Brad Lyons suggests people stay away from credit card debt especially.
“Pay off debt as much as [you] can, to the extent that [you’re] able to do so,” he said.
Paying down debt, especially now, might sound daunting, but there are a couple different tactics you can use, the avalanche method and the snowball method.
As tempting as it is to take out money from your investment accounts, especially as you watch numbers take a dive, Lyons says don’t fall for that temptation.
“During periods where you have decreased valuations in the stock markets, nobody likes to see their valuations in their accounts go down, their retirement plan accounts that they have become accustomed to seeing going up and up and up year after year after year,” Lyons says. “And now they’re seeing it go down some, but it’s going to come back over time.”
For younger generations, he says, this is an opportunity to invest at a lower price, if you can afford it.
“What we’re suggesting is that people remain invested, maintain their asset allocation that was designed in order to achieve their goals and objectives in the timeframes that they have set for themselves and continue to add to their investment portfolio through their retirement account savings.”
Dollar cost averaging is one of the most trusted strategies. It’s investing the same amount of money at regular intervals, regardless of what the market is doing.
“By taking advantage of lower valuations you’re effectively buying more shares at a lower price,” says Lyons.
Although it can be hard when every trip to the grocery store is costing you more, and the price of everything is going up, both Drak and Lyons say saving is hugely important, and it can also be advantageous.
“As interest rates continue to rise, we will begin to see interest rates higher in our savings accounts, and newly issued fixed income securities,” says Lyons.
If you stick your money in a high yield savings account, it’s going to grow faster than it would have just a few months ago. And although that probably won’t keep pace with current inflation, it helps to build a safety net.
The 1980s was a long decade. There were two recessions and it was years before inflation was under control and interest rates began to drop. And although our current situation is a little different, if there’s anything to be learned from the past, it’s that inflation and higher interest rates will be here for a while yet.
“Bear down,” Drak tells younger generations going through a similar financial landscape. “Try to work as hard as [you] can and make as much money as [you] can, and be as frugal as [you] can. That’s the key. And there’s no way around it. You have to be prudent. You have to pull back and you have to watch your pennies.”
Mitt Romney says a billionaire tax will trigger demand for these two physical assets — get in now before the super-rich swarm
You could be the landlord of Walmart, Whole Foods and Kroger (and collect fat grocery store-anchored income on a quarterly basis)
Too many Americans are still missing out on cheaper car insurance
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Tokyo resident Shoji Morimoto previously worked at a publishing company where he was often reprimanded for “doing nothing,” so he turned his skill into a business.
It’s time to consider this contrarian play.
Is this the ultimate safe haven?
Gary Gensler had strong words for the crypto industry in a Thursday speech, telling an audience of lawyers that the "vast majority" of the nearly 10,000 existing crypto tokens are securities.
Tough times are coming. But maybe not for investors.
As we close in on the final quarter of 2022, investors are looking for an answer to one question: was June’s low the bottom for stocks, or do they have more room to fall? It’s a serious question, and there may be no easy answer. Markets are facing a series of headwinds, from the high inflation and rising interest rates that we’ve grown familiar with to an increasingly strong dollar that will put pressure on the upcoming Q3 earnings. Weighing in on current conditions from Charles Schwab, the $8 t
Yahoo Finance's Brian Sozzi discusses why Intel shares are down today.
There has been no respite for the markets since Fed Chair Jerome Powell took to the podium at Jackson Hole and suggested the central bank will do whatever it needs to do in order to tame inflation, and if more rate hikes are required – so be it. The market might have gotten a case of the heebee jeebees in response, but it’s a plan that billionaire hedge fund manager Bill Ackman thinks is going to work. By next year, the CEO and founder of Pershing Square Capital expects inflation will be slashed
At this time, I would like to welcome everyone to the FuelCell Energy's third quarter earnings call. Tom Gelston, senior vice president of finance and investor relations, you may begin your conference. This morning, FuelCell Energy released our financial results for the third quarter of fiscal year 2022 and our earnings press release and our quarterly report on Form 10-Q are available in the Investors section on our website at www.fuelcellenergy.com.
AMD shares are moving higher after Stifel initiated coverage on the stock with a Buy rating.
Yahoo Finance Live checks out the stock of ride-share giants' Uber and Lyft amid the decision to revoke New York's mask mandate.
Vale and Zim Integrated Shipping Services sport ultra-high dividend yields and compelling long-term valuations.
In this article, we discuss 10 dividend stocks with over 8% yield to buy in September. You can skip our detailed analysis of top high dividend stocks, and go directly to read 5 Best Dividend Stocks with Over 8% You Can Buy in September. In the current market situation, investors are looking for different ways […]
SmartAsset compares three of the largest investment companies based on usability, trade experience, offerings and cost. Learn more here.
Reconnaissance Energy Africa Ltd. (the "Company" or "ReconAfrica") (TSXV: RECO) (OTCQX: RECAF) (Frankfurt: 0XD) is pleased to announce its new business relationship with Alvarez & Marsal and Hannam & Partners. The two companies will work closely with ReconAfrica in managing its evolving data room as well as launching a global reach to potential, high quality, joint venture partners to join the Company's initial exploration program in the Kavango sedimentary basin, NE Namibia.
A closely watched bond-market gauge of near-term inflation expectations has fallen below the Federal Reserve's 2% target for the first time in two years.
Zacks Market Edge Highlights: General Electric, IBM, Pfizer, Bank of America and McDonald's
What's better than a big fat S&P 500 dividend? One that's rising fast. And there's a surprising number of S&P 500 stocks doing it.
In poker, blue chips carry the highest value, and the name has attached itself to the highest-quality stocks. The blue chips have a reputation for holding their value and providing a degree of defense to investors’ portfolios, making them attractive at a time of increased market volatility and generally falling share prices. The blue chip dividend payers are particularly attractive, as they combine the twin pillars of quality and long-term payment reliability. So let’s follow this line, and take
Shares of Rivian Automotive (NASDAQ: RIVN) rose sharply Thursday morning after the widely followed EV maker announced a new partnership. Rivian said it has signed a memorandum of understanding with the Mercedes-Benz Van division of Daimler AG for a new joint venture to manufacture electric vans. The vehicles will be tailored for individual customers similar to the electric delivery vans (EDVs) Rivian currently produces for Amazon.
