The volatility of US banks is a growing concern for many of our tax and investing clients. With each bank collapse, it seems like more and more clients are asking about their own investments and deposits—especially those who own businesses or have a significant amount of cash on hand.

But contrary to the latest headlines, this recent volatility isn’t something most savers and investors need to be worried about. Because with the right financial plan in place—one built to proactively withstand volatility and fluctuations—you can protect your wealth and weather financial turbulence with ease.

What’s causing the increased bank volatility?

During the 2008 banking crisis, subprime mortgages and significant overleveraging caused the whole banking sector to stumble. It wasn’t just one bank making risky investments—hundreds of banks across the country engaged in the same concerning practices.

Today, the volatility we’re seeing primarily stems from the homogeneity of certain banks. In other words, these banks are largely comprised of one type of customer who is particularly susceptible to bank runs. 

Silicon Valley Bank is a great example of this dangerous homogeneity. Because SVB catered to venture capitalists, founders, and those with substantial cash deposits, when the bank showed signs of weakness, the majority of its depositors panicked and rushed to pull out their funds. That groupthink triggered a bank run, and eventually caused the failure of the bank.

On the other hand, big national banks work with a wide variety of customers who hold both large and small deposits—limiting the possibility of a bankrupting withdrawal spree. That’s why, unlike in 2008, this banking volatility is likely to be concentrated among the handful of banks that cater to a specific type of high value depositor. Unless there is a significant shift in the market, the effect of collapsing banks will probably be fairly contained—rather than triggering a national crisis. 

How can you protect yourself from the impact of a bank collapse?

If you’re a traditional banking client with less than a couple hundred thousand dollars in the bank, there’s really nothing you need to do to minimize your exposure. The FDIC already insures up to $250,000 worth of deposits, per type of account, per person, at every bank. So unless you have significant cash on hand, you’re fully protected. 

Even if you have more than $250,000 in funds saved at a single bank, over the past several decades, the government has always stepped in to cover depositors. 

If you have banking investments, however, we recommend adopting a proactive strategy.

If you have bank investments, like money market mutual funds and Exchange Traded Funds (ETFs), you are exposed to more risk. 

SVB, for example, saw its stock value plummet to less than $1 per share after its collapse. While your deposits may be safe, your portfolio? Not so much. 

In times of banking volatility, we have a two-pronged approach to investments: Stay diversified and proactively manage risk. 

An insulated investment plan often starts with a well-diversified investment, like index funds. We choose funds that include hundreds or thousands of stocks, because if one or two companies fail, the value of the index fund hardly moves. 

The second side of our approach involves actively managing your risk. We work with expert mutual fund and ETF managers who buy investments when they’re a good deal, and sell those that are losing value or becoming too risky. These professionals have an exceptional knowledge of the market, groupthink, and how to balance risk and return. And their active management is invaluable to our clients. 

The recent bank collapses have had minimal impact on our clients because, while many of them do have some exposure to the banking sector through mutual funds, our diversified and proactive approach has limited the dip and maximized their returns at every turn.

In times of banking volatility, the best thing you can do is save smart and avoid panic-selling.

One of the best things you can do to avoid getting caught up in a bank run is avoid saving a significant amount of cash in traditional savings accounts. Remember, the FDIC backs up to $250,000 in cash, per person, per bank. If you have more than that in a single bank, you should be asking yourself whether you truly need that much liquidity.

Unless you’re a small business with significant operating expenses, or one with a fluctuating cash flow, you can keep your savings protected and generate a small return simply by storing that cash in US Treasuries or money market mutual funds—both of which are considered stable and secure.

The second thing you can do to protect yourself in the event of a banking crisis is avoid the urge to panic-sell your investments when the market trends downwards. While you may be tempted to “cut your losses” and get out when you can, the best thing you can do for your long-term financial health is to wait out the dip—or talk to Cook Wealth about using the market shift to offset some capital gains taxes and rebalance your portfolio. 

When bank volatility threatens your peace of mind, call Cook Wealth

Our team of experienced investment advisors, financial planners, and tax professionals have navigated dozens of market dips over the past few decades. We’ve seen market crises, bear markets, bank runs, and more—and helped our clients navigate each with clarity and confidence.

When you’re ready for a financial plan built to withstand the ups and the downs, book an intro call with our team to find out what’s possible.