What do the recent bank failures mean for portfolios and how might investors consider protecting their wealth amid uncertainty?
From the desk of Michael Weisz, Yieldstreet Founder, President, and Chief Investment Officer
Silicon Valley Bank (SVB), a lender to some of the biggest names in tech, became the second largest bank to fail since the Global Financial Crisis on Friday. Following the news, New York-based Signature Bank was also closed after a run on deposits. In the days to follow, public markets have been rattled as banks and regulators alike work to regain public confidence.
How did we get here?
Many of SVB’s venture capital-backed customers were flush with cash after experiencing record profits during the pandemic. As most banks do, SVB kept a portion of their deposits in a cash reserve and invested the rest in Treasury bonds at low interest rates.
Since then, the Fed has raised rates an unprecedented eight times in an effort to keep inflation related to COVID-19 monetary policy at bay. At the same time, venture capital investments dried up — forcing tech startups to draw heavily from their accounts at SVB.
When rates rise, the value of bonds generally falls. To keep up with the demand for cash, SVB was forced to sell $21B in Treasury bonds at a loss, leading to a classic bank run.
While most major banks have a diversified balance sheet and customer base, SVB and Signature were saturated with companies over the FDIC deposit insurance limit of $250K.
What does this mean for my portfolio?
While these bank failures do not appear to point to any systemic problems, we continue to see high levels of risk facing public markets. Key questions remain around geopolitical conflict, inflation, rate hikes, and economic growth, among other factors.
We also saw stocks and bonds fall simultaneously in 2022, delivering the worst year of returns for a traditional portfolio since the Great Financial Crisis. These two asset classes continue to show strong correlation, a deviation that challenges prior assumptions in portfolio construction.
Our thesis: The traditional 60/40 portfolio is no longer enough to meet long-term goals.
How do I protect myself?
We believe a well-balanced portfolio in 2023 includes approximately 40% stocks, 30% bonds, and 30% private markets. Consider the following sample allocation:
| Stocks | 40% | A diversified selection of stock market ETFs: A large-cap U.S. ETF A small-cap U.S. ETF An international developed-market ETF An emerging-market ETF |
| Bonds | 30% | A diversified selection of bond ETFs: Total bond market ETF TIPS ETF Sub-investment grade (“high-yield” or “junk”) bonds ETF International bonds ETF |
| Private market alternatives | 30% | Emphasis on core alternative asset classes: Private Credit Real Estate Private Equity Further diversify with these generally low-correlation alternatives: Legal Finance Art Structured Notes |
| Cash | Held across several banks and in semi-liquid products |
We recognize that Yieldstreet only represents a portion of your overall portfolio. In consultation with your advisors, we hope this helps you evaluate your current asset allocation.
Explore available investments across each alternative asset class here.
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. References to specific assets/securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such assets/securities. This communication reflects the opinions only of the authors who are associated persons of Yieldstreet. It is not a research report and is not intended to serve as the basis for any investment decision. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. Any third-party information provided therein does not reflect the views of Yieldstreet or any of its subsidiaries or affiliates.
Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.
While diversification may help spread risk, it does not assure a profit or protect against loss.
Outlooks presented herein are presented for informational purposes only, and set forth our views as of the date of this article. The underlying assumptions and our views are subject to change. This outlook includes certain forward-looking statements, including estimates, forecasts and projections provided by the management of Yieldstreet regarding future performance. Such forward-looking statements, estimates, forecasts and projections (i) reflect various assumptions concerning future industry performance, general business, economic and regulatory conditions, market conditions for Yieldstreet’s products and other matters, which assumptions may or may not prove to be correct, (ii) are inherently subject to significant contingencies and uncertainties, many of which are outside the control of Yieldstreet and (iii) should not be regarded as a representation by Yieldstreet that such estimates, forecasts or projections will be achieved. Actual results can be expected to vary and those variations may be material.
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