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What student loans, Fed's interest rates could mean for investors

A government shutdown has been avoided, for now, after President Biden signed Congress' stopgap bill that keeps the federal government funded through November 17. With another long-term spending agreement yet to be decided, and other financial headwinds still brewing, many investors are questioning how to handle their portfolio. Mitlin Financial Founder Lawrence Sprung joins Yahoo Finance to break down what investors should now be focusing on heading into 2023's final quarter.

"There's a high level of optimism to close out 2023 and going in early 2024," Sprung says, noting a bullish outlook while considering the Federal Reserve's outlook for higher for longer interest rates and consumer spending's resilience ahead of student loan repayments.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

RACHELLE AKUFFO: Lawrence Sprung, Mitlin Financial founder and author of "Financial Planning Made Personal," joins us now. Good to have you on the show here. Obviously, a sigh of relief here. But it was something of a wake up call, if you weren't prepared for any shutdown here.

Break down first your reaction to the shutdown being averted and how people should be viewing their portfolios, being that we're going to be in the same position potentially on November 17.

LAWRENCE SPRUNG: Yeah. Thanks for having me, Rachelle. And yes, it was nice to see that they came to an agreement, even though it's for a short term. But at the same time, this is something that is more common than I think most people realize. Since 1976, we've had 22 funding gaps. And there were four full government shutdowns and several partial ones along the way.

So typically, the market's reaction is more nervous going into the event. But at the same time, the market's realized that there will be a conclusion and an end to the government shutdown at some point. It's just a matter of how long it lasts. So if you look at, historically speaking, markets are relatively flat through the shutdown. And then typically, one year later, we've seen, on average, about a 12% rate of return from when the markets or when the government reopens.

So it was a good thing. I think that we have to be prepared that the potential that it does happen again. I think the one thing we have going for us is we're going to be 45 days closer to the next election, which, hopefully, cooler heads will prevail. And they'll come to an agreement prior to that 45-day deadline.

RACHELLE AKUFFO: Indeed. So then when we look at some of the themes that are going to be dominating Q4 this year, you have a relatively bullish outlook here. What's driving that optimism?

LAWRENCE SPRUNG: Well, I know your last guest you had on, you were talking about the student loans, and those payments starting to resume. And there was some concern over that having an impact on the economy. And, in fact, what we saw last week was a report that people are actually paying and started paying those student loan debts sooner even before the bills were due on October 1.

And we're not seeing an impact yet to consumer spending. So that bodes well. And looking at historically speaking, when you look at August and September being difficult months, October, November, and December usually are very good months for the market. And we expect the Fed to stay pat. We don't foresee them raising rates any further.

So with all these things at our back, we really feel that there's a high level of optimism to close out 2023 and going in early 2024.

RACHELLE AKUFFO: So then Lawrence, so then if we're not going to see, perhaps, the pain for the consumer showing up in its full glory in this coming quarter, what are your expectations when that does show up, when it does start to pinch, being that we are still in a higher for longer rate environment?

LAWRENCE SPRUNG: I'm not sure that we're going to see that pinch come into play. And I think we have to put the current rates in perspective. I think we got spoiled over the last 10 plus years with extraordinarily low interest rates. I would argue that the last 10 years or so was an environment that was the uncommon time. And if you look at where we are now, we're in a, I think, more normalized interest rate environment to where we were prior to the last 10 years.

So I don't see interest rates as high right now. I see them certainly higher than where we were. but in relation to historical perspectives, I don't think they are. I think there's going to be a little bit of an adjustment period for most folks, especially younger folks, who are not used to seeing rates at these levels, and their only knowledge is rates significantly lower, to get acclimated and understand how this rate environment, and how they need to operate in this rate environment that we're in today.

RACHELLE AKUFFO: Lawrence, very quickly. In terms of what people should prioritize then going into this period of higher for longer, although, as you mentioned, this is actually what would be considered more of a normal period here. What should they prioritize?

LAWRENCE SPRUNG: I think one of the biggest problems or challenges that we've seen is debt being increasingly-- I think you have to understand your own personal situation, and look at what your goals are in the short and long term, and start prioritizing them.

It all starts with understanding cash flow. That is at the heart of an individual's household. You have to know how much money is coming in, how much money is going out, and where it's going. And look at your assets versus liabilities and what those debts are. And see if you can start reducing those debts, especially because of the rates the way they are, and start tackling them.

And you could pick a strategy that works for you, whether that's a snowball effect, picking the smaller debts and eliminating them, or picking the larger ones and just chipping away. But you got to get to work.

RACHELLE AKUFFO: Indeed. That's the message. You have to get to work, indeed. A big thank you there to Lawrence Sprung, Mitlin Financial founder and author of "Financial Planning Made Personal." Appreciate you joining me this morning.