Between March 8thand March 12th, 2023, three large U.S. banks failed, generating a lot of media attention. Many pundits wrote about the pending collapse of the U.S. banking system and dire consequences for the stock markets. Some compared this situation to the 2008 bankruptcy of Lehman Brothers on September 15th, 2008, and the beginning of the Great Recession.
As they always do, prognosticators are claiming that this time, it’s different — they say that this time, we’re in real trouble. But this time isn’t different. We are not in trouble! The truth is, although the nature of risks and market downturns changes through the years, we can always prevail simply by having a sound financial plan in place, keeping some cash reserves available and staying the course.
You can almost always find opportunity within a crisis.
About the recent bank collapses
To put this in context here is an overview of the three bank collapses that occurred in the second week of March 2023:
- On March 8th, Silvergate, a California-based bank that made loans to cryptocurrency companies, announced that it would cease operations. Silvergate catered largely to cryptocurrency companies, including the failed exchange FTX. The media generally ignored the fact that this was a very niche situation.
- On March 10th, Silicon Valley Bank (SVB) was placed into Federal Deposit Insurance Corp. (FDIC) receivership. After prominent venture capitalists, including those from Peter Thiel’s Funders Fund, told customers to pull their deposits out of the bank, SVB was hit with a wave of requests for cash. By the end of the day on Thursday, March 9th, depositors withdrew more than $42 billion. This was another unique situation.
- On March 12th, state regulators closed New York-based Signature Bank, the 16th-largest lender in the United States. A sudden and unexpected onslaught of customer withdrawals erased more than $100 billion in market value from U.S. banks. The FDIC took control of Signature, which had $110.36 billion in assets and $88.59 billion in deposits at the end of 2022, according to New York state’s Department of Financial Services.
Later on March 12th, the U.S. Treasury, Federal Reserve and FDIC issued a joint statement saying that all the depositors of Signature Bank and Silicon Valley Bank would be made whole and announced actions to shore up deposits to try to prevent further fallout.
Yet no depositors have lost any funds, and again, Silvergate and Silicon Valley were niche situations and not indicative of the overall banking climate.
Avoid reacting to media reports
As we have said for three decades, the media often offer incomplete information, with a bias toward the negative and short-term aspects. This type of attention can create unnecessary anxiety and drops in markets, which cause many people concern. However, we believe market downturns provide a great opportunity for long-term investors.
We have seen this repeatedly — those who take advantage of dips benefit, while those who panic and/or sell permanently lose wealth. The key to be in a position where you do not need to sell. As always, we recommend having cash reserves and/or fixed income to cover 9 to 12 months of your family’s needs. Currently, there are some relatively high rates available for cash and cash equivalents, with money markets yielding 4.5% or greater!
When the markets take a tumble, it’s not all bad news. Some sectors of the economy actually tend to outperform others as consumer needs shift. These include health care and consumer staples stocks (or funds tracking those sectors), large-cap stocks and income investments.
Market volatility is normal and expected, contrary to media focus. Since 1928, this country has seen a market drop of 5 percent about every 2 months, on average; 10 percent about every 8 months; and 20 percent every 30 months.
Keep in mind that the media will often talk about a “points drop,” not a “percentage drop,” and as the markets move higher, this is more dramatic. For example, in June 2018, the Dow was at 24,000, so a 10 percent swing would be 2,400 points. Today, with the DOW at 32,000, a 10 percent swing is 3,200 points. Given the bank issues this month, the market moved a few hundred points, which is still relatively insignificant.
Have a good plan in place to avoid locking in losses
The key to building wealth is to avoid locking in losses. By having a good plan and good cash reserve you should never have to sell.
Here are some of the biggest news topics from 1981 through 2021:
1981 Beginning of steep recession
1982 Worst recession in 40 years
1983 Market hits new highs
1984 Record federal deficits
1985 Economic growth slows
1986 Dow nears 2000
1987 Record-setting market decline
1988 Iran hostage crisis
1989 October “mini-crash”
1990 Persian Gulf War
1991 Fall of the Berlin Wall
1992 Global recession
1993 Health-care reform
1994 Fed raises interest rates six times
1995 Dow tops 5,000
1996 Dow tops 6,000
1997 Hong Kong reverts to China
1998 Asian Flu outbreak
1999 Y2K scare
2000 Tech bubble bursts
2001 Terrorist attacks on US soil
2002 Corporate accounting scandals
2003 Invasion of Iraq
2004 Rise in interest rates
2005 Gulf hurricanes
2006 North Korean testing of nuclear missiles
2007 The Chinese correction
2008 Beginning of the global financial crisis
2009 U.S. unemployment rate exceeds 10 percent
2010 BP oil spill
2011 The European PIGS debt crisis
2012 Falling off the U.S. fiscal cliff
2013 Boston Marathon bombing
2014 Ebola outbreak in West Africa
2015 The Paris attacks and U.S. mass shootings
2016 Donald Trump or Hillary Clinton
2017 North Korean nuclear testing
2018 Beginning of the US–China trade war
2019 Trump’s quid pro quo impeachment
2020 COVID-19
2021 Border crisis
2022 Russia’s invasion of Ukraine
If someone who turned 65 years old at the end of 2021 had invested $10,000 in the S&P 500 at the age of 25 on January 1, 1981, he or she would have $963,427, despite all the issues with markets, the economy and in the media. During that time, there were a lot of reasons to panic and to avoid investing. Yet those who did invest, and who ignored the negativity and stayed the course, fared well.
From March 1, 2012, to March 1, 2023, the Dow moved from 13,142 to 32,652 — a gain of 148 percent- despite all the issues.
Whether it’s a bank collapse, an international crisis or some other upheaval, you can weather the storm by being prepared and working with your financial advice team on the best strategies to take. Yes, the nature of crises will always vary, but one thing will never change: savvy investors can find opportunity within the upheavals.
We will guide you in taking a disciplined approach
There have always been — and most likely will always be — reasons not to invest and reasons to panic. Yet with a disciplined approach, you can not only manage these situations but benefit from them. While the events change, the ideal reactions are the same, as are the opportunities. We recognize that, although this is simple in theory, it is difficult in practice. That’s why we are here for you.
Our team has more than 250 years of combined experience with all kinds of market and economic conditions. We will guide you through whatever comes our way. Please reach out if you have questions or concerns or if we can otherwise be of service. There are potential pitfalls in building wealth today, yet there are also tremendous opportunities. Your vision is our priority, and your financial well-being is our passion. We look forward to connecting with you.
Holding investments for the long term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.
Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Carver Financial Services, Inc. was established in 1990 with the vision of making people’s lives better — clients, team and community. With this mission, Carver Financial Services has grown to be one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2022. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy directly at randy.carver@raymondjames.com in the office at (440) 974-0808.
The News Herald recognizes Randy Carver
