Reducing Risk in a Volatile Market

David Treece |

Our office has had a lot of inquiries about the recent bank failures that have caused the stock markets to retreat. One of the bank closures was the second-largest in US history, with over $200 billion in assets. Clients are understandably concerned about the safety of their investments, the risks associated with them, and what can be done to minimize their risk exposure. 

Will there be more bank closures, and will these two closures ripple through the economy?

While some commentators have downplayed the risks, it's important to understand that there is still a lot of economic uncertainty in the market. Volatility will remain through this Fed rate hike cycle. The bottom line is that investors need to position themselves for risk in the foreseeable future.

What Investors Can Do

Investors can minimize their risk exposure by:

  • Working with money managers who can go to cash and reduce risk.
  • Ensuring funds are diversified.
  • Investing in annuities that provide guarantees on every dollar invested or guaranteed growth.
  • Investing in FDIC-guaranteed CDs.
  • Keeping in alignment with your long-term strategy.
  • Investing according to their risk tolerance.

Preventing a Full-Blown Banking Crisis

The Federal Reserve has put measures in place to prevent a full-blown banking crisis. One of these measures is the Bank Term Funding Program, which offers loans up to one year to banks who pledge US Treasuries and mortgage-backed securities at par. This allows banks to obtain liquidity without incurring losses from selling treasuries that have become devalued with interest rate increases.

The Bottom Line

Now is not the time to get aggressive. Investors should be mindful of the risks involved in investing and work with their advisors to minimize their risk exposure. The market doesn't stay down historically, it has always come back. We just have to ride the current wave with intentional planning and preparation.

We are here to help. If you have concerns or questions about your investments, we're happy to provide a complimentary portfolio review. Schedule a time to chat here.

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