If you’re the type of person who pays attention to the stock market, you know that the bull market that started 10 years ago is still going strong (as of publish date) and has been one of the longest periods of rising stock prices in U.S. history.
Bull markets tend to coincide with a strong economy – and the U.S. economy has been growing, for the most part, since mid-2009. Now is a good time to consider if there may be opportunities to take advantage of favorable market conditions. “In other words, prepare for lean times when times are good,” says Gary Pia, a CERTIFIED FINANCIAL PLANNER™ professional founder of Mission Street Wealth Planning and the city treasurer of South Pasadena, Calif.
Here are six things you may want to consider doing with your finances in a bull market.
Build cash reserves
Now could be a great time to prepare for market and economic downturns that may come later by building your cash reserves, Pia says. Having cash can soften the blow of having to look for a new job if your company cuts back, facing an unexpected medical emergency, or even replacing an appliance when it decides to stop working, he says.
Setting up an automatic monthly transfer from your checking account to a savings account is one way to build cash reserves. Accounts with a high interest rate can help your money can grow (online banks tend to offer higher rates). It may also help to label an account “emergency fund” or something similar as a reminder not to touch the money unless it’s absolutely necessary.
Pay off credit card debt
If you already have an adequate emergency fund, consider turning your attention to paying off your credit card debt while the good times are still here, says Dan Callahan, a partner and financial advisor with Capasso Planning Partners. One way to pay off credit card balances faster is to take advantage of balance transfer offers from credit cards that charge no interest – or a low interest rate – on the amount transferred for a certain period of time.
“Right now, offers for zero-interest balance transfers and low, fixed-rate credit card consolidation loans are plentiful,” Callahan says. “These offers will be few and far between, or even nonexistent, during an ugly recession.” Transferring the balance on a card with a high interest rate to one with a 0 percent rate can reduce the total amount to pay – as long as it’s all paid off during the no or low introductory rate period. CreditCards.com has a calculator you can use to see how much money you could save by transferring your balance.
Consider opening a home equity line of credit
If the value of your home has increased over the past ten years, you may have more equity than you realize in your home, Callahan says. You can turn that equity into an accessible source of funds beyond your emergency fund by opening a home equity line of credit, called a HELOC. The line of credit can be available to use when it’s needed – like a credit card. But unlike a credit card, the interest rate on the amount you borrow will be lower, he says.
This now might be beneficial “because HELOCs are much more difficult to obtain during recessions,” Callahan says. It’s important to remember that a home equity loan is a secured debt, and your home is the collateral. There may also be tax considerations depending upon how the money is used.Be sure to weigh all your financing options when deciding whether to open a home equity line of credit.
Refinance your mortgage
A bull market might be a good time to consider taking advantage of low interest rates by refinancing your mortgage, says John Kennedy, a CFP® and co-founder of CandorPath Financial.
By refinancing your mortgage at a lower rate, you can reduce your monthly mortgage payment. The lower rate also will reduce the total amount you pay over the term of the loan. If you have an adjustable-rate loan and you refinances into a fixed-rate mortgage, this could protect you from future rate increases. Be sure to consider any closing costs or other expenses a refinance might add to your mortgage when making a refinance decision.
Invest in yourself
If you’ve lowered your monthly mortgage payments by refinancing, you could use the extra money in your budget to pay for courses or certifications that will help increase your value at work and make you more indispensable. You also might be able to take advantage of the strong economy to negotiate a pay raise. “If you were hired several years ago at your company, you may be surprised to find the market rates for your position have changed to your advantage,” Kennedy says.
You also could boost your income now by tapping into the gig economy, Kennedy says. You can find side hustles on a website such as Sidehusl.com, then use the extra cash to pay off debt, build your emergency fund or boost retirement savings.
Re-evaluate your lifestyle
If you’ve been caught up in the optimism of the bull market, take time to re-evaluate your lifestyle. “Just because the economy is strong and markets are strong, keep in mind those who tend to be successful tend to live below their means not just in tough times but in good times as well,” says Kiel VanderVeen, a CFP® professional with CenterPoint Financial Group. You might have made some poor financial decisions because you weren’t thinking ahead to the next downturn.
To avoid more costly mistakes, consider the risks you would be taking with any big purchases. “The American consumer is trained to think in terms of ‘Can I afford this payment?’ and look at the current situation only,” VanderVeen says. A dream vacation, bigger mortgage or car loan might fit within your budget when the economy is strong, but the splurge might hurt your finances down the road.
Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She also is an award-winning journalist who has been writing about personal finance for more than 17 years. You can learn more about her at CameronHuddleston.com.
Haven Life Insurance Agency offers this as educational information only. Haven Life does not endorse the products, services and/or strategies discussed here.
The information provided is not written or intended as specific tax or legal advice. Haven Life Insurance Agency does not provide tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.