Eight dos and don’ts for preparing your personal finances for the challenges ahead in 2018:

DO brace for higher borrowing costs

The economy’s improving, and that means an increased likelihood of more interest-rate increases next year. The Bank of Canada’s benchmark overnight rate moved higher by a cumulative 0.5 of a percentage point in the second half of 2017. A quick scan of the latest big bank economic outlooks suggests it could rise by another 0.5 to 0.75 of a point next year.

If you have a variable-rate mortgage or a home-equity line of credit, expect your interest rate to keep pace with these increases. Insulate yourself by paying down your debts. Suggestion: Divert part of your intended contribution to a registered retirement savings plan or tax-free savings account toward paying down your debts with the highest interest rates.

DON’T expect much improvement on savings rates

The return on high-rate savings accounts is tied to competitive pressures in the banking marketplace much more than it is to interest-rate trends. So while your HELOC will rise in lockstep with the overnight rate, your savings rate may change less than that or not at all.

Waiting for your big bank to boost savings rates to meaningful levels – equal to the inflation rate or better – is pointless. Engineer your own rate hike by finding an online bank with a competitive return on savings. Find top rates at the Canadian High Interest Savings Bank Accounts website.

DO expect more hysteria about cryptocurrencies

The rise of bitcoin and other cryptocurrencies is one of the top news items of 2017. There’s a gold-rush aspect to bitcoin, but it’s also a technology story, an investing story and a testament to how trust in public institutions is decaying. Remember, bitcoin is a virtual currency that isn’t backed by anything tangible such as a government and its central bank.

Beware bitcoin’s FOMO effect. Fear of missing out is a powerful motivator to make bad investing decisions.

DON’T buy in unless you have the right mindset

The rise of bitcoin has been compared by some market watchers to the bubble in technology stocks in the late 1990s. Keep those tech stocks in mind if you’re going to invest in cryptocurrencies directly or through products that will soon be rolled out by the investment industry. Buy in strictly as a speculative play. Take profits as opportunities present themselves. Use only money you can afford to lose in its entirety and keep this stuff well away from your retirement fund.

DO be cautious with your investment portfolio

A common reason why stock markets crash is fear of recession. The economies in the United States, Canada and elsewhere seem to be improving, which should be bullish for stocks. But there’s a feeling of complacency about risk these days that has to be acknowledged.

The investment industry is capitalizing on this appetite for risk by introducing faddish products focusing on sectors such as marijuana production, artificial intelligence and so-called “alternatives,” which are investments that supposedly act independently of the stock and bonds markets. Even investors who wouldn’t dream of touching these sectors have upped the risk level in their portfolios by evicting bonds to make room for more dividend stocks. There’s no specific reason to expect a stock market pullback in 2018, but you should nevertheless prepare for that possibility.

DON’T forget bonds or GICs

Bonds or guaranteed investment certificates are the best portfolio insurance against a stock-market crash. Accept no substitutes.

DO emphasize fees as a controllable factor in your investing

The investment industry has become much more accepting of the idea that fees are an important variable in portfolio-building. The entire robo-adviser franchise – online management of your investments by pros – is based on a much lower fee than traditional advice firms charge.

Still, the onus remains on individual investors to ensure they’re paying a fair cost for products and advice. All fees are up for discussion – fees for advice, product fees such as those charged on exchange-traded funds and mutual funds, and even administrative and trading fees. It’s hard to find an investing expert who doesn’t believe we’re in an era of more modest investment returns than we’ve seen in previous periods. Lowering fees is one way to fight back.

DON’T forget the value proposition

Look at what you pay, and what you get for the money. An adviser who skillfully manages your portfolio, your retirement plan and your tax situation is worth some cost.

The Globe and Mail, December 21, 2017