Big hair, shoulder pads, and the Cold War characterized the era. When reminiscing about the 1980s, people frequently overlook the exorbitant interest rates that might send you into a tailspin.
According to Brad Lyons, a certified financial planner and investment manager at Wiser Wealth Management in Georgia, “interest rates started the decade around 20%.” In order to combat inflation, they “had [increased] them considerably in the late 1970s.”
When the 1980s began, Lyons was in his early 20s. And even though current interest rates still seem low in comparison, there is much to be gained from those who have already gone through it.
The inflation statistics for July show that consumer prices are 8.5% higher than they were in July of last year. It stood at 9.1% in June. These rates have not been observed in many years.
People who recall the absurdly high interest rates that accompanied the tremendous inflation of the 1970s advise buckling down and exercising caution since the road ahead is lengthy.
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The 1970s and 1980s saw a great inflationary period.
Experts have compared the current situation to the massive inflation of fifty years ago.
The abolition of the gold standard (the monetary system in which a currency is backed by gold) and low unemployment were two factors at the time, but energy prices were what really made a difference.
When the Organization of the Petroleum Exporting Countries (OPEC) imposed an oil embargo on the west for its support of Israel during the Yom Kippur War, the price of oil nearly doubled that year. A number of domino consequences led to an increase in inflation and stagnation. Then, at the end of the decade, the Iranian Revolution drove oil prices soaring once more.
Inflation had reached 14.5% and unemployment had reached 7% by 1980. The federal funds rate was increased by the Federal Reserve to a staggering 17% (it is currently between 2.25 and 2.5%).
According to Mike Drak, a banker at the time, the high interest rate made getting ahead nearly difficult. He recalls that his mortgage rate at the time was 17.5%.
Rates were rising, virtually on a monthly basis, according to Drak. “Consequently, it appeared like it was something that would never end. And I recall once stating, “I’d be the happiest person in the world if I could ever discover one day where I could find a mortgage rate for 10%.”
Victory Lap Retirement and Retirement were written by Drak. Senior contributor at Booming Encore, a finance site targeted at the baby boomer demographic, and author of Heaven or Hell: Which Will You Choose.
reduce your debt
According to Drak, debt at that time swiftly increased on credit cards, residences, and vehicles.
“Those were trying, dangerous times. But since we could work, we were fortunate. Therefore, despite the fact that our earnings did not increase at the same rate, we both had to work to make ends meet.
Paying off debt, he argues, is one of the most crucial things you can do while interest rates are high. At that time, his objective was to reduce his mortgage, which wasn’t simple.
“You’d have to say I want to make lump sum increases annually on it, since the interest rate was crushing and I didn’t want to be imprisoned,” the person said. “You’d have to have a lot of discipline.”
Brad Lyons advises people to avoid debt, particularly credit card debt.
To the degree that you are able to, “pay off debt as much as [you] can,” he said.
Even now, paying off debt could seem overwhelming, but there are two strategies you can employ: the avalanche approach and the snowball method.
Lyons advises not succumbing to the desire to withdraw funds from your investment accounts, even as you watch the figures plummet.
Nobody likes to see the value of their retirement plan assets, which they are used to seeing increasing continuously year after year after year, decline at times when stock market valuations are declining, according to Lyons. And while they are currently observing a slight decline, it will eventually resume.
According to him, if you can afford it, there is a chance for younger generations to invest at a reduced cost.
We advise customers to retain their asset allocation, which was created to help them reach their goals and objectives within the time frames they specified for themselves, and to keep investing more of their retirement account savings into their investment portfolios.
One of the best methods is dollar cost averaging. It involves consistently investing the same sum of money, regardless of how the market is performing.
According to Lyons, “by taking advantage of lower values you effectively buy more shares at a reduced price.”
Save your money.
Both Drak and Lyons assert that saving is crucial and that it can be helpful, despite the fact that it can be challenging when everything is getting more expensive and your shopping bills are increasing with each trip.
We will start to notice greater interest rates in our savings accounts and newly launched fixed income products as interest rates continue to increase, predicts Lyons.
Your money will increase more quickly if you place it in a high interest savings account than it would have a few months ago. Additionally, it contributes to creating a safety net even if it probably won’t keep up with the current inflation.
Get comfortable for the long haul.
It was a lengthy decade, the 1980s. Before the inflation was under control and interest rates started to decline, there were two recessions. Even though the circumstances in which we currently find ourselves are somewhat different, history teaches us that inflation and higher interest rates will continue for some time to come.
Younger generations experiencing a similar financial scenario are advised to “bear down” by Drak. “Try to work as hard, earn as much money, and practice as much frugal living as you can. That is crucial. There is no avoiding it, either. You must use caution. You must take a step back and keep an eye on your finances.
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This article does not offer advice; it just provides facts. It is given without any type of warranty.
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