In March, investors around the world received a jolt when several high-profile bank failures and near-failures rattled markets. But Michael Stohler, the Wisconsin Foundation and Alumni Association’s chief investment officer, says that this is no time to panic.
“Our banking system sits on solid footing. I don’t want overreact to current events,” he says. “I think there are some periods in history when it makes sense to try to do something extreme with your asset allocation. I don’t think we’re currently in one of those environments.”
Stohler joined two UW grads for a discussion of recent bank instability — and the Federal Reserve’s response to that instability — on the April 4 episode of The UW Now Livestream. While he sees the potential for market volatility in the short term, he maintains that the long-term investor can ride out inflation and the current year’s rise in interest rates.
Tonight on The UW Now Livestream, I’ll talk about:
I hope to bolster conviction in our banking system and the Fed’s ability to address price stability. From an investment perspective, it’s prudent to use the current volatility to look for opportunities to purchase quality assets for discounted prices. That being said, optimal asset allocations are probably not that far from longer-term, strategic targets. The good news for us is that equities, over a long enough time horizon, have been a good hedge for inflation. [WFAA], in the endowment, is a long-term investor, and the majority of the risk-taking in the portfolio is equity oriented.
If there’s one thing viewers should remember, it’s:
To stay invested.
If you’re worried about your own bank’s stability, look at:
Most retail banking customers do not need to worry about the solvency of their bank because of FDIC insurance. The most important balance sheet metric for banks probably would be the loan-to-deposit ratio. This ratio tells you about the assets that the bank has relative to the deposit base. You’d like the deposit base to harmonize with the assets that they own. When banks engage in higher degrees of leverage, that leaves open the possibility that the decline in asset price suddenly creates an asset-liability mismatch, especially if there’s a run on deposits.
To get smart fast:
I encourage most investors to consult investment professionals but also try to do your own research as a complement to getting sound, non-conflicted professional advice.