There’s an upside to uncertainty in the markets

There are opportunities for business owners and investors in the current economic cycle

Virtually every economic cycle is defined by a watershed event, a moment in time that marks a turning point. The 2000 dot-com bubble, Enron in 2001, Lehman Brothers in 2008 — these are a few examples of failures that, in hindsight, defined economic shifts in recent memory. Recent banking industry news could be interpreted as a milestone and human nature tells us to be cautious. Yet, these are times that can also present important opportunities.

As inflation and higher rates impact the economy, business owners and investors have had to adjust. How can a rapidly shifting business environment be effectively managed? This is a question we’ve been hearing a lot from our customers. The good news is that there are strategies that will allow you to make the most of a confluence of factors currently affecting the markets.

On the business side, short-term deposits are now earning a higher yield. This has changed dramatically in the past year, and business owners should take advantage of the fact that they can earn more on their liquid assets. Think of the upside: You can accumulate cash and watch deposits grow without taking significant risk — a comforting thought when markets feel scary. And, when conditions are right, you will be positioned to execute on growth opportunities for your business. For individual investors, there are similar aspects that offer consolation. Your core deposits can be earning more, even in very low-risk vehicles such as money market funds.

With all of these considerations as the backdrop, it’s no wonder that customers are seeking direction in an uncertain environment. Here’s what we’re telling them:

• Time horizon matters. Seeing investments shrink is never easy, but decisions should be made consistent with your investable horizon. That means thinking about where you are on your career journey and what risks you can afford to take. It is important not to let emotions drive decisions during periods of market volatility if you have an intermediate to longer-term horizon.

• Assess your risk tolerance. Questions surrounding risk tolerance feel very different during a downturn, but investors need to resist the temptation to make wholesale changes to asset allocation. In situations where the portfolio is well diversified and there is a disciplined investment selection process in place, it may be better to gradually adjust the allocation as markets eventually recover. This is an environment to assess risk tolerance and put together a plan for moving forward if adjustments are warranted.

Consider a strategy for rebalancing your portfolio. Portfolio rebalancing should be proactive, not reactive. Your advisor can help you adjust and rebalance in the way that will be consistent with your investment goals. It is important to have these discussions and to take a disciplined approach to periodic rebalancing. This will help to avoid the temptation to make an emotional decision that may cost in the long run. It will also ensure that you add to assets that have declined in value when the return potential is greatest.

Above all else, know that you don’t have to make these decisions without guidance. Your financial institution is there to talk through changes with you, large or small. Whether you’re just looking to make some minor adjustments or if you’ve decided to make a big step, like expanding or selling your business or deciding to retire early, it’s important to have a plan.

Justin Jennings is NBT Bank’s regional president of New Hampshire, and Charles Mathews is a senior wealth management consultant with NBT Bank, based in Manchester.

Categories: Banking and Finance