I wrote blog posts back in 2019, 2020, and 2021 with a different focus but the same theme: we can talk all day about the state of the economy and the capital markets, but when asked what will the markets do, the answer invariably should be “Beats Me!” Similarly, back in February of 2022, when all seemed lost with heightened inflation, rising interest rates, falling stock prices, and the escalation of the Russia/Ukraine war, I revisited an old insurance slogan proclaiming, “It’s Always Something!” Certainly, now feels the same way with the Silicon Valley Bank (SVB) failure adding to the mix of a difficult time in the markets.
No one knows if the SVB failure is systemic or just a very isolated “idiosyncratic” event unique to that bank. Certainly, the higher interest rates targeted by the Fed to fight inflation affects all banks and contributed to the SVB failure, but aspects of SVB make it a bit unique since it was primarily a “tech” and business lender with about 90% of its deposits “uninsured” and “smart money” venture capital firms familiar with SVB prompted the “run on the bank”.
Meanwhile, higher interest rates continue to be on the docket (though may be off the table for a bit post-SVB?), inflation is still troublingly high, and the Russia/Ukraine war continues with a troubling persistence. What is an investor to do?
As I have always said, as long as your investment strategy is tailored to your risk tolerance/profile and managed to achieve your goals, it is best to stay the course. For example, I did some work for a potential “high net worth” retired client and showed them that they could keep all their liquid assets in “cash” and be pretty well assured that they would not run out of money and live the life through retirement that they wanted. They were happy to hear that (and did NOT become clients!), but the message was clear; a lowest risk strategy worked for them! Alternatively, younger investors with a longer time frame and higher risk tolerance can afford to take some risk and reap the benefits of potential higher returns.