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Macro and Market

Bank Failures, Rising Rates (Again) and Recession

Direct from our call logs: Our financial consultants answer clients’ top three investing questions this month.

Woman looking stressed while holding phone.

Key Takeaways

Bank failures may be bad news for the economy but don't change how money held in a mutual fund is protected.

There may be a silver lining to the Federal Reserve (the Fed) raising rates for the 10th time.

Wondering or worrying about investing in a recession? Which camp you’re in may depend on your plan.

Regional bank failures, interest rate hikes and a potential looming recession are on many investors’ minds. Financial consultants Amy Alley, Chris Goodwin, Rowland Pepito and Jennifer Simmons answer questions about these headline makers and how each may impact your finances—or not.

Could Bank Failures Affect Mutual Funds?

“Bank failures may be a catalyst for moving the U.S. economy closer to a recession,” says Jennifer, “and make investors nervous about money held with any financial company. But how your money is protected in banks versus mutual funds looks very different.”

Banks and mutual funds have different security rules. A bank failure doesn't change how money held in a mutual fund is protected.

While not covered by the Federal Deposit Insurance Corporation (FDIC) like banks, mutual fund protections come from how they are organized and governed. Mutual fund assets are held with a custodian bank, but the Securities and Exchange Commission requires those banks to keep mutual fund assets separate from their other assets. That means if a custodian bank should falter, the mutual fund assets can’t be touched in a potential “bank run,” and we would move the assets to a new custodian bank.

“Bank failures are also an important reminder to all of us about FDIC limits per person in bank accounts.” says Chris. “We encourage clients to be mindful of the risks of funds beyond the $250,000 limit, especially with bank accounts having historically low yields.”

Are Rising Rates Bad News for My Finances?

“After last’s year’s ‘nowhere to hide’ conditions with both equity and bond market losses, the Fed’s rate hikes could be welcome for fixed-income investments and investors looking for income,” says Rowland.

After last year’s ‘nowhere to hide’ market conditions, rising rates could be welcome for fixed-income investors.

Our investment professionals say a strategy may be to consider longer-duration and quality fixed-income investments if the Fed switches policies and ends its rate-hike campaign. They also argue for bond diversification outside the U.S.

Chris added, “Rising rates could also be good for those who have idle money they aren’t currently investing. After interest rates basically being zero for so long, people may be surprised at how rising rates are impacting cash equivalent investments, such as money markets.”

Amy agrees. “I’ve had many clients looking to invest in certificates of deposit. But they may not realize that money markets may also be an option, especially if they're looking for more liquidity.”

How Will a Recession Impact My Investments?

It depends. “We’re hearing that clients who have a solid financial plan may be wondering about their portfolios, but they generally aren’t worried. That’s a good sign you’re confident in your plan,” says Chris. On the other hand, those in the “worried” camp could probably use some guidance.

Clients with a solid financial plan may wonder about their investments in a recession, but generally they’re not worried.

In addition, conditions today are very different from those that preceded the 2008 Great Recession. “Most clients aren’t worried about a repeat of 2008,” says Amy. “We’re 14 years from that event, so it’s not as raw for those who lived through it. They’re older and may be investing in a very different way now.”

“Investors close to or newly retired may have greater concerns around market drops because of recovery time fears. However, clients may be reassured that we account for periodic market declines when we help them plan,” says Chris. “World chaos doesn’t end when you quit your day job, and long-term investors have likely experienced these same conditions before—and come through them.”

“Even in retirement, market fluctuations are an expected part of investing,” adds Jennifer. “A trusted financial advisor can help you strategize by examining your cash reserves and diversifying your income sources in down markets to help avoid selling securities, if necessary, before the market recovers.”

What to Do About Financial News

All four consultants agree: Have a financial plan. And the time to review or get your plan in place is now. “As financial professionals, we believe one of the best things you can do to prepare for uncertainty in the economy and the markets is to have a plan,” says Chris. “Not only can it give you a road map for your future, but it can also help you spot hidden gaps.”

A financial plan is a road map for your future and can help you spot gaps.

Amy added, “Working with an advisor can help you see the bigger picture and identify things you may not have considered.” All our consultants agree and believe getting a professional opinion on something as important as the money you’re investing for your future—and for others—is well worth your time.

“Some people shy away from working with a professional,” says Rowland, “but we do want you to have a plan. And when you call us, we’re easy to talk to no matter where you are on your financial journey. So don’t let fear hold you back.”

Think financial planning is only for those nearing retirement? It’s actually smart at any age. In your 40s, financial planning can have a particularly significant impact on your future. “Aside from helping you know if you’re on the right trajectory to retire, many tax complications retirees face could have potentially been reduced with proper early planning,” adds Chris.

Jennifer agrees, “We see some people with pretax accounts who end up with large required distributions or other distributions, which could bump them into a higher tax bracket than they expected in retirement.” Few retirees want that.

With financial planning taking on more meaning than you may have thought, our consultants urge you not to put off creating your plan. And make sure you review it at least annually or when conditions may be changing.


Amy Alley

Amy Alley

Financial Consultant

Rowland Pepito, CFP®

Rowland Pepito, CFP®

Financial Consultant

Chris Goodwin

Chris Goodwin

Financial Consultant

Jennifer Simmons

Jennifer Simmons

Financial Consultant

Want to Talk Over Your Plan?

Our team of financial consultants is ready to help you navigate current events and your own changing needs.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Generally, as interest rates rise, the value of the bonds held in the fund will decline. The opposite is true when interest rates decline.