STAYING RESILIENT
Nathan L. DeFries
Recent news has many businesses and investors feeling on edge — understandably. Geopolitical tensions, wars, inflation, rate hikes, the always-looming possibility of a government shutdown and changes in congressional leadership have created a cloud of uncertainty over the nation’s economic climate. Consequently, this cloud has cast a shadow on already-volatile financial markets. Stocks have experienced abrupt declines, sudden stabilization and unexpected surges, while bonds, too, have seen more than their fair share of turbulence.
In the midst of this turmoil, it’s important to remember that the markets have a history of rebounding from downturns, even after major crashes such as the Great Depression, the dot-com bubble burst and the subprime mortgage crisis. They have weathered 21 government shutdowns over the past 48 years. During the longest shutdown in history, from December 2018 to January 2019, the S&P 500 initially fell by about 5 percent but later recovered significantly, ending with a 28 percent gain.
Volatile markets are disruptive, certainly, but keep in mind that history tells us what matters is the long term. Don’t lose sight of the fact that, over the past 50 years, the stock market has averaged a 10 percent annual return, even in tough economies. That’s a good return on investment, even if you do experience periods of turbulence.
Patience and solid financial strategies are key to building resilience. Local banks can be crucial allies in this, providing steadfast support in challenging times. As you look for ways to address this difficult economy, consider the following advice:
1. Build a Strong Financial Foundation. Resilience starts with a solid financial foundation. This involves managing your finances wisely, saving for emergencies and minimizing debt. Regardless of market conditions, having a well-thought-out financial plan can give you with a sense of security and control over your economic future.
Local banks can be invaluable in this process, offering personalized financial guidance, savings accounts customized to your needs and products to help you manage debt more effectively. Community bankers are relationship bankers who offer the support you need to establish a strong financial footing and achieve your goals.
2. Diversify Your Investments. Diversification is a proven strategy to mitigate risks in your investment portfolio. It is wise to spread your investments across various asset classes, such as stocks, bonds, real estate and commodities. Each has its own unique risk and return profile, so by diversifying across different asset classes, you can reduce your overall risk and provide a buffer during uncertain times.
When choosing specific investments, it’s important to consider your individual goals and risk tolerance. If you’re not sure where to start, it is a good idea to consult with a financial advisor.
Local banks can also play a role in diversification by providing investment products such as Individual Retirement Accounts (IRAs), CDs and others. They can also assist you with loans to make other investments for your future, perhaps in real estate or alternative assets
3. Stay Informed but Avoid Hasty Decisions
Keeping an eye on the news and financial updates is crucial, but don’t let fear drive your actions. Making hasty decisions during times of uncertainty can sometimes result in less favorable results. Instead, consult with a financial expert who can provide you with a balanced perspective.
Community bankers are well versed in the unique economic dynamics of your area. They can offer informed insights, tailored advice and the stability you need to make solid financial decisions in turbulent times.
4. Focus on Long-Term Goals. It’s easy to worry about the day-to-day fluctuations of the stock market. As mentioned earlier, though, you have to focus on the long-term.
Staying committed to your goals will help you stay on course. By partnering with a local bank, you can ensure your financial goals remain at the forefront, even when markets are volatile.
Resilience is a quality that’s vital in today’s uncertain financial world. It’s imperative that businesses and investors concentrate on strategies to withstand challenges and seize opportunities. By adhering to your goals and making use of the support provided by local banks, you can endure the tough times and secure a stable financial future.
So, stay informed, stay committed, stay connected to your bank, and you can emerge from these turbulent times with increased financial strength and resilience.
Nathan L. DeFries is an executive vice president and the chief financial officer for Bank of Utah. He is a CPA and graduate of Brigham Young University.