Issue #251: Are you ready for it? (it = rate cuts)

Now is also a great chance to start seriously thinking about any major purchases I want to make in the next 12 months. Santander survey data shows that Americans have been putting off buying new cars and houses because prices and borrowing costs have been so inflated lately. But as the Fed starts lowering rates, both should come down.

For mortgage rates alone, forecasts are all over the place, ranging from 5% to 6.2% at the end of 2025. Nobody knows what’s going to happen, but I can’t take my eye off the ball.

“Do the homework and the planning so that you can be ready when rates do come down [to] take advantage of the opportunity to make that purchase,” Wennes says.

This, too, is a gradual thing. It’s not as if houses will all of a sudden be super cheap on Sept. 19. In fact, Ben Bakkum, senior investment strategist at Betterment, tells me not to get too caught up in the headlines.

“A lot of people have in their mind [that] it's a one-to-one relationship between the Fed’s cutting, and like, my mortgage rate is going to go down by the amount that it's cutting,” he says. “But it's going to happen on a lag, and it's going to happen over time. There's not going to be this crazy change overnight.”

Investing-wise, this may be a good opportunity to seek out longer maturities. Bakkum says that as the federal funds rate comes down and the APYs for cash options fall, longer-term bonds may offer higher yields. By looking for bonds (and bond funds) with an extended duration now, I can lock in an attractive coupon rate — the rate of interest paid annually — for years to come.

This also helps me mitigate reinvestment risk, which is the possibility that I won’t be able to reinvest money at the same rate I previously did.

That said, younger investors saving for retirement might want to avoid stashing too much money in bonds and high-yield savings accounts at all. Because they have a longer time horizon, they can afford to take on more risk — and keeping that money on the sidelines means they’re missing out on the “wealth-generating engine that is the stock market,” Bakkum says.

“If you're starting to re-evaluate where you're putting your money because of news like this, think about a well-diversified portfolio for the long term that includes stocks,” he adds.

To get ready for the Fed to slash rates, I should make sure I’m getting a good rate on my savings (like through a high-yield savings account or CD), do some homework on big purchases coming down the pipeline, take the headlines with a grain of salt and re-examine my investment strategy.

Football player and famous boyfriend Travis Kelce just purchased a share of a race horse named — what else? — Swift Delivery. Kelce called himself “a Derby guy” after attending the Kentucky Derby back in May, so it only makes sense that he’d financially back a contender (the most expensive horse at that derby was the $2.3 million Sierra Leone). Alexa, play “cowboy like me.”

See you next week.

P.S. Scholar Amanda wrote in after last issue about budget binders to say she doesn’t use physical envelopes for cash-stuffing but instead YNAB, which is kind of a digital version of the same concept. Super cool.

P.P.S. Are you doing anything to prepare for rate cuts? Have you ever tried coffee milk? What’s your favorite Pokemon? Send questions, comments, concerns and more to julia@money.com.