The Fed is trying to thread the needle by raising interest rates to fight inflation and is failing miserably!
The edges are beginning to fray and we have seen several banks fall into the abyss. This is just the beginning of what will be more difficult than many in the market are anticipating. The regional banks are showing alarming weakness and credit is becoming tighter every day. This translates into less liquidity for the businesses and real estate operators in the economy and will continue to have ramifications for the markets at large. Focus on managing risk should be a high priority for individuals and institutions as we progress into the summer and second half of 2023.
The silver lining is that interest rates are at a higher level now which is providing decent returns in lower-risk options for investors. I had a conversation with a client yesterday and she referred to her fixed-rate annuity as her favorite investment right now as it pays her a steady rate of return that goes up every month without any effort or worries. There have been concerns about deposits in banks and brokered CDs have been a popular place for people to invest in multiple banks through access we have to the secondary and primary CD marketplace. This allows for an investor through one account shop at multiple banks to have their $250,000 insured on each CD in one account. Investors can get millions of dollars invested without hopping all over at different institutions to do so.
The time to really evaluate your risk levels and protect yourself is now. If you are in retirement or within 5 years of retiring the ability to rebuild a nest egg is no longer an option. When there are distributions coming out of the portfolio it creates a different set of risks to the investor when markets are down or staying in one place for an extended period like we saw from 2000-2012.
There are opportunities that are coming into focus as interest rates rise and it is a good time for us as investors to adjust to where markets are heading in the next several years versus where they have been the last several!