4 Smart Money Moves to Make As the Economy Starts to Recover

People walk past the U.S. Treasury Department building in Washington D.C., May 21, 2020. Ting Shen/Xinhua/Getty

Imagine you just woke up from a six-month coma. You're informed that while you were out for the count a new virus spread across the world, claiming more than 500,000 lives and infecting nearly 12 million people worldwide. That, in turn, caused a nasty recession and the highest unemployment rates in the U.S. since the Great Depression. As if that weren't enough, the killing of a Black man by a Minneapolis police officer, captured on video, sparked global protests in more than 60 countries, with demonstrators demanding racial justice and an end to police violence.

After a moment to collect your breath, you're then told that the U.S. stock market has soared by about 20 percent over the past three months, retail sales surged a record 17.7 percent in May and employers added 4.8 million jobs to their payrolls in June as businesses nationwide began to reopen.

Pretty weird, right?

It's a mixed-bag picture that Americans are waking up to daily. The country is still in the midst of a devastating economic downturn and, with cases on the rise in at least 38 states, it's not like COVID-19 has gone anywhere. But as financial conditions improve in some sectors, there are also, undeniably, pockets of opportunity popping up—at least for the three quarters of Americans who still have jobs and can afford to take advantage of them.

If you're among the fortunate ones, here are four smart moves to consider making now.

Renovate On the Cheap

As the news of a growing second wave of coronavirus cases spread, mortgage rates hit another all-time in early July, with 30-year fixed-rate loans dropping 2.9 percent, according to Mortgage News Daily. That might make this seem like an ideal time to shop for a new house but it's not; home sales tend to drop dramatically during pandemics, says certified financial planner Brian Lockhart. In fact, in a recent NerdWallet study, about three-quarters of respondents expressed concern about buying a house this year, worried about their ability to safely tour prospective homes, sell their current residence and make mortgage payments.

What it could be an ideal time for instead, says Lockhart: taking on a renovation project to make your home more attractive to potential buyers when the market finally normalizes and a lot nicer to live while you're still in it.

Many homeowners seem to have gotten the word. A recent Bank of America poll found that 70 percent of respondents planned to tackle home improvement projects this year, with more planned for 2021. And, perhaps because they're spending a lot more time in their living quarters lately, owners are already hard at it. Spending on improvements shot up 40 percent at the end of June, compared to the same period last year, Earnest Research reports.

If your home has gone up in value, you can take advantage of today's historically low mortgage rates and raise funds to renovate inexpensively with a cash-out refinancing of your current loan. suggests Chris Hutchins, head of autonomous financial planning at Wealthfront. To qualify, though, you'll need at least 20 percent equity in your home and a credit score of 720 or higher to nab the best rates.

Slash Your Credit Card Interest

In fact, after the Federal Reserve slashed its benchmark rate to zero earlier this year in response to the pandemic, most borrowing rates are low these days. One notable exception: Rates on credit cards remain stubbornly high, at 16.6% on average for accounts that charge interest. That's a full three percentage points above where rates were in 2015.

Erasing that high-rate debt can immediately improve your bottom line. The average credit card user has a balance greater than $6,000, according to credit agency Experian, which can result in hundreds of dollars in interest charges a year.

Refinancing that debt with a new lower-rate credit card, often recommended by advisors in normal times, is probably not the best solution now. Banks, leery of risk with the economy in flux, are getting tight with their open-ended credit spigot and card offers have gotten stingier—a far cry from the generous introductory bonuses, extravagant spending rewards and long zero-percent financing periods offered when the economy was more robust.

If you have a solid credit score of 720 or higher, a better way to work down debt may be via a personal loan, with an average interest rate of 9.6 percent on a two-year note, per the Fed. That's the lowest average in at least five years. Another plus: The consistent installment payments on a personal loan might give you the necessary discipline to wipe out your debt faster than the lower, variable payments allowed on credit card balances.

Before searching on a personal loan aggregator online for the best deals, check with your local credit union. These institutions often offer lower rates than banks and other lenders.

Nab a Deal on a New Car

Shoppers, understandably, haven't been inclined to look for new wheels lately. Inquiries for auto loans among the most creditworthy borrowers dropped by two-thirds in the early months of the pandemic, according to the Consumer Financial Protection Bureau. Sales have continued to sputter, and are expected to be down 34 percent when second-quarter results come out, car research firm Edmunds reports.

Unlike the situation with credit card lenders, though, dealerships are offering increasingly generous financing terms to try to win back your business. Many manufacturers are offering loans of up to six years at zero percent interest for buyers with excellent credit, according to RealCarTips.com. Meanwhile, Nissan is taking it one step further, kicking in an extra 12 months of interest-free financing on top of that. Car and Driver reports many auto companies, faced with a supply glut, are also holding down prices overall.

Good credit is key to getting the best deal, though, as banks are tightening lending standards for auto loans. According to the Federal Reserve Bank of St. Louis, 16 percent of auto lenders raised the criteria for qualifying in the second quarter of the year—the highest percentage in at least nine years—versus none who were doing so when 2020 began.

Grow Your Retirement Savings

Personal finance scolds (myself included) advised folks not to abandon stocks in their 401(k)s and IRAs just because these investments fell into one of the swiftest bear markets in history when the pandemic hit. Most savers, but not all, heeded the call.

Two Meows/Getty

According to Fidelity, of the 7 percent of their customers who made changes to their investments from February to May during the worst of the carnage, nearly one in five sold stocks. The exodus was even steeper among older savers: Of the 7.4 percent of investors age 65 and older who made changes, nearly a third cashed out some of their stocks, thereby turning what had been losses on paper into the real thing at a period of their lives when they have less time available to make up the difference.

Those savers, young and older, missed out on one of the most dramatic rebounds in market history, with the S&P 500 rising 45 percent from March 23rd to June 8th, according to Sam Stovall, chief investment strategist at CFRA Research.

The moral of the story: You can't let big news events derail your long-term financial plan. The day-to-day, week-to-week and even year-to-year movements of the financial markets are impossible to predict, and gains often come in short, sharp spurts; by the time you recognize what's happening, the upswing is often over and the reason for it is only apparent—if there even is a rational explanation—in hindsight.

What seemed to reassure the markets this time? After stocks' initial nosedive in February, Congress passed a trillion-dollar relief package and the Fed slashed rates and snatched up bonds like candy, with the central bank stepping in again to allay investor jitters in mid-June as second wave-fears intensified. And the central bank will likely run its printing press for the foreseeable future, experts say.

"The Fed is not expecting to raise rates for years, even as the economy recovers through 2022," notes Morningstar senior equity analyst Eric Compton.

The most important reason to stick with a sizable stake in stocks in your 401(k), though, is history: Over the long run—periods of 10, 15, 20 years or longer—they have outperformed all other investments and are your best bet to grow your savings into a comfortable nest egg for retirement.

Following some simple rules can help smooth out the ups and downs and lead to bigger gains in the long run. For starters, automate contributions to your account, so you end up buying more shares when prices are low and fewer when shares are up. And make sure you have a good mix of different kinds of stocks, because the various categories tend to do well at different times.

For instance, over the past three months, the big stocks that dominate the S&P 500 index have risen 19 percent in value, but the smaller companies of the Nasdaq have gained 32 percent. You should have some money in each type, along with a fund that invests in stocks outside of the U.S. and some fixed-income investments too.

Perhaps most important, when the going gets tough again, as it inevitably will, try to remember that the stock market isn't synonymous with the economy, and one day the coronavirus will be firmly in the past. Invest for then, not now.

Taylor Tepper is a senior writer at Wirecutter Money and a former staff writer at Money magazine. His work has additionally been published in Fortune, NPR and Bloomberg. You can find him on LinkedIn, Twitter, and Instagram.