Investing pros give their take on investing amid high inflation and bank failures
This past week, recent bank collapses sent the greater banking world reeling.
The failures of two major U.S. banks—Silicon Valley Bank and Signature Bank—also sent shockwaves through the financial markets, triggering drops in major bank stocks which in turn led to a temporary halt in trading of several regional bank stocks.
First Republic Bank saw its stock tank 62% on Monday after a 33% drop last week. Shares of PacWest Bancorp and Western Alliance Bancorp dropped 21% and 47%, respectively.
As far as what these recent failures mean for investors, experts say it’s an opportunity to reflect and potentially look for ways to take advantage of lower valuations.
“The SVB collapse should raise red flags for those invested in high-premium securities in the venture capital and private equity sectors. Current economic conditions were already causing those high-valuation investments to unravel, and the SVB collapse will likely fuel that trend,” says Clark Kendall, CFA, AEP®, certified financial planner, President and CEO of Kendall Capital in Washington, DC. “Bank stocks have reportedly lost at least $100 billion in market value since the collapse. I think that’s an overreaction, but it does create opportunities to invest in attractive banks at these valuations.”
What investing pros have to say about investing in today’s market
In a time of high inflation when interest rates are hitting record-highs and seemingly stable banks are collapsing, it can be difficult to know what to do with your investments.
And recent data from J.D. Power shows that investor confidence is plummeting. According to the J.D. Power U.S. Investor Confidence Index, which tracks investor sentiment among U.S. consumers aged 18 and older with at least $100,000 in investable assets, investor confidence fell 15 points to 581 (on a 1,000-point scale) in the final quarter of 2022.
One of the key factors contributing to low investor confidence: inflation.
Overall, just 24% say they are highly confident in their ability to keep up with inflation, down from 27% in Q3.
So where do we go from here? Well, we asked a handful of investing pros for their advice on what you should know about investing in today’s market:
Clark Kendall, CFA, AEP®, CFP®, President and CEO of Kendall Capital
“Obviously, in the immediate wake of regulators’ actions with regard to SVB and a couple of other banks, investors are spooked and shares in banks are plummeting,” says Kendall. “I think that’s an overreaction. There are opportunities in the financial markets at the present time which include fixed income securities such as US Treasuries, agencies and municipal bonds and high-quality dividend paying common stocks. Now is the time to take the emotion out of your investing and be on the lookout for opportunities to invest in attractive companies whose valuations are likely to become more and more attractive.”
Collin Plume, CEO of Noble Gold Investments
“The only investors not afraid of bank runs are investors with minimal cash in banks. These are investors who know the importance of having a hedge, an asset that goes against the movement of traditional assets like cash and stocks. They realize the importance of investing in assets that are outside of government control, of investing in assets that have repeatedly performed the best during economic distress. These savvy investors are invested heavily in gold,” says Plume. “It is unfortunate that many investors only realize the importance of precious metals when everything goes south.”
Milind Mehere, CEO and Co-Founder of Yieldstreet
“Increased market volatility in combination with the rising interest rate regime has led to attractive risk-adjusted returns in secured private debt investments. These include selective opportunities in Commercial Real Estate debt, which are secured by the underlying properties they finance, Art Finance, which are loans collateralized by high-quality artwork, in addition to middle-market direct lending opportunities, which provide loans secured by the assets of the borrower,” says Mehere. “As broad reference rates rise, the cost of debt financing increases, leading to higher interest rates for similar or better credit quality borrowers in addition to stronger collateral levels.”
Mina Tadrus, CEO of Tadrus Capital
“Investors should always re-think their investment strategies. The economy is fluid and dynamic and changes quickly, so investments that seemed lucrative or safe before might no longer be the best choice,” says Tadrus. “Diversifying investments, such as investing in stocks, bonds, and other products, can help minimize risk. Additionally, having cash reserves to draw from in times of economic hardship can also be beneficial. Finally, investors should monitor market and economic conditions closely to ensure that their money is being safely invested and managed.
Ron S. Geffner, Partner at Sadis & Goldberg LLP
“Investors must consider where they keep their assets and how to invest their assets. Retail investors, on average, unfortunately lack the sophistication to understand the risks in connection with investment in the financial sector,” says Geffner. “It may also further call into question whether the playing field is balanced and whether institutional investors are advantaged not only based on their experience but also their access to information and to act quickly on the disparity of information and the timing of receipt of this information.”
Protecting yourself and your assets
While investing will always involve some level of risk, there are steps you can take to try to mitigate some of that risk in the event that the market begins to experience extreme lows.
Diversify your portfolio. Take a close look at your portfolio and make sure that you’re invested in a diverse mix of assets that don’t behave similarly. Spreading your risk across asset types and not putting all of your eggs in one basket gives you the best chance of coming out on top, even when the market is more volatile.
Keep an eye on the market, but don’t try to time it. Timing the market is a losing game. By reacting quickly to stock market swings, you could actually generate greater losses. It’s important to know how your investments are doing, but avoid making any sudden moves and panic-selling your assets. Most experts would agree that you stand to gain more by staying the course and riding out any short-term volatility.
Re-think your investment strategy. Your portfolio mix and investment strategy should take into consideration your appetite for risk. If stock market drops are making you panic, this may be an opportunity for you to consider whether or not your asset mix actually aligns with your risk tolerance and if you should consider lower-risk assets.
The takeaway
For investors who are at a loss for what to do next and how to navigate today’s market, take a page from our experts’ books. Look for opportunities to invest in more lucrative assets, try not to rely too heavily on your emotions when managing your portfolio, and rest assured that what goes up usually comes down, and vice versa.
This story was originally featured on Fortune.com
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