The Current Banking Headlines And Preparing For The Unknowns In Life

Since last weekend, the health of the Banking industry has been in the news recently and we wanted to talk about it.

Tent…check, sleeping bag…check, trail mix…check, water…check, fire starter…check, shovel…check. Ok audience, who knows the activity we are about to embark on based on the list provided? If you guessed standing in line for the newest Apple iPhone, you would not be wrong, but that is not what we are talking about today. Camping was the correct answer. There is something about leaving the comfort and safety of your home, heading out to a remote location where you can no longer hear the hum of cars on the road in the distance and becoming “one with nature.” Often though, the enjoyment from this type of experience comes in large part from the preparation you put in prior to the trip. Just like each component of our camping list helps us cope with some kind of risk, there are things you can do now that help prepare your cash from the unexpected as well.

With today’s focus on banks: here are some tips we recommend for cash management (note: these are relevant anytime, not just this week):

• Review your account balances and keep them below the FDIC insurance limit (generally $250,000 per account type) when possible.
• If you have cash above the FDIC limit, consider the flexibility of a brokerage account. In this type of an account, you could add excess cash to a U.S. Treasury Money Market Fund or FDIC-insured brokered CDs offered by many different banks. The beauty of it is it can all be done in one account.
• Keep an emergency fund of cash at the bank, typically 3 to 6 months’ worth of expenses to cover any unforeseen circumstances that may arise, like being laid off at work.

We know there is much going on in world right now. Currently the banking sector is in focus, not to mention war in Europe for the first time since World War II. Additionally, back in 2020, covid caused great uncertainty as the global economy was forced to shutdown to deal with the pandemic. The point is, both recently and throughout time, uncertainty is unavoidable and will always be there.

So, what can we do to protect ourselves financially during uncertain times?

• Stay diversified: Your portfolios are designed to be prepared for the unknown. They are invested in many different asset classes of the investment world. This diversification is designed to protect us from many different types of risks. While all risks cannot be eliminated, staying diversified has shown to help smooth out the ride.
• For those in the distribution phase, we have choices: When you are in the distribution phase of your life, pulling from parts of your portfolio that are up or at least flat allows us to give time for asset classes in your portfolio that are “out of favor” to recover. In the end, our goal is to be sure you have your tent, sleeping bag and water canteen with you to give you the peace of mind to live your lives, even in the midst of uncertain times.
• Stick to the plan: When the unexpected happens, many people feel like they should be doing something with their portfolios. Often, headlines stoke these feelings with predictions of more doom and gloom. However, it is important to remember that the primary objective of a financial plan is planning for the unknown. At the creation of the plan, we knew the future was unknown, which is why we spent so much time contingency planning. Planning for what can happen gives you more control than trying to guess what might happen.

We hope this perspective will help shed some light on guiding principles for how we are managing the current volatility. Always remember that you are not alone. Always feel free reach out to your Cambridge advisor if you need anything.  

The Cambridge Capital Management, LLC Investment Committee.