Interest rate ups and downs

With interest rates so low, I figure they will probably rise in the years ahead. Is that good or bad? — P.D., Green Bay, Wisconsin

High interest rates are great for savers, as bank accounts and certificates of deposit (CDs), among other things, will offer more interest. Annuities bought when rates are high will pay out more, too. Freshly minted bonds will offer higher interest rates — but bond funds, and those looking to sell existing bonds with older, lower interest rates, will take a hit.

Meanwhile, higher interest rates can hurt interest-sensitive sectors of the economy. The price of gold often falls when interest rates rise, for example. Real estate is especially affected: When rates are high, homebuyers will face steeper mortgage payments and may have to buy lowercost homes — or may end up deferring purchases. Sellers might have to reduce their asking prices to make their homes more affordable for buyers. Those with adjustable-rate mortgages (ARMs) will see their mortgage payments gradually increase.

What happens if my brokerage goes out of business? — W.H., Dunkirk, New York

Most brokerages are covered by the Securities Investor Protection Corp. (SIPC), which protects your account for up to $500,000 in securities and cash, including up to $250,000 in cash. Some also carry additional insurance. You’ll be protected if your brokerage fails, but not if your investments simply fall in value or if, for example, a company in which you own stock goes bankrupt. Be sure your brokerage is SIPC-protected by checking SIPC’s list of members. Or just call and ask the brokerage.

Learn more about good brokerages at our site, TheAscent.com, and more about the SIPC at SIPC.org.

Make the Most of Your 401(k)

Most of us need to save and invest a lot to amass hefty safety cushions for our retirement. If your employer offers a 401(k) plan, it can be a great retirement-saving tool for you. Here are some tips:

Start participating as soon as you can, and contribute money aggressively.

The more you save and invest, the more your account can grow. For 2021, the maximum contribution is $19,500. Those 50 or older can contribute an additional $6,500.

Consider opting for a

Roth 401(k) account. Much like a Roth IRA, it will take your money on a post-tax basis, offering no upfront tax break. In exchange, though, withdrawals in retirement can be tax-free.

If your employer matches your contributions, contribute at least enough to max that out — because it’s free money. For example, if your employer will add $3,000 to a $6,000 contribution you make, you’ve just earned an instant risk-free 50% return!

Understand that over long periods, it’s hard to beat stocks.

But many 401(k) accounts automatically invest your money, by default, in slower-growing, conservative investments. Consider setting your account to invest much or all of your money in stocks.

Low-fee index funds are great stock investments.

If your 401(k) plan doesn’t include an index fund based on the S&P 500 or the broader U.S. or global stock market, ask if one can be added.

For maximum growth, plan to leave your money in your account for as long as possible. If you leave that job, you might roll that money into your new employer’s 401(k) or into an IRA. Don’t borrow from your 401(k) unless it’s really an emergency.

If you have a question for the fool, visit fool.com.