The year has started with an increased, but conservative, level of optimism toward economic growth. The CFO Outlook Survey, which polls CFOs of public and private businesses in the U.S. on their economic and business confidence and expectations, found that CFOs seem to be more confident now than in the prior year. In fact, the survey’s quarterly optimism index for the U.S. economy jumped more than five points to 70.71, representing a 14 percent increase from where it stood a year ago (62). The optimism index for U.S. CFOs’ businesses increased to 73.11 from 40.41 in September 2014.
This type of conservative optimism was reinforced by Federal Reserve Chair Janet Yellen in her semi-annual report to Congress presented to the House Financial Services Committee on February 25. She said, “If we gain confidence and continue to see the labor market improving, we will consider still raising rates.” That has been taken to mean by many economists that the Fed will increase its benchmark short-term rate, now near zero, but it’s unclear just when that will happen.
“It’s going to be a slower paced recovery, especially when you’re talking about investments and interest rate environments,” says Ludwina Ossa, Vice President and Senior Product Manager at Manufacturers Bank.
Smart Business spoke to Ossa about the investment outlook in a period of tentative conditions and cautious mood.
What should investors consider before making an investment?
Flexibility has to be a key consideration so that investors aren’t locked into terms that could be better in the future, especially when current economic conditions suggest maximizing cash flow. A money market account is a powerful strategy that could allow an investor to achieve this while ensuring funds remain liquid.
In what ways can investment risks be managed?
There are various levels of how well banks are capitalized. Investors should put their money in a strong organization that will not just secure funds but grow them. FDIC insured deposits are important since it guarantees the safety of a depositor’s accounts in member banks up to $250,000 for each deposit category in each insured bank. Some institutions enable depositors to maintain a relationship with a single financial institution while the bank can share substantial deposits of more than $250,000 with other entities. This provides depositors with a more aggressive, yet fully guaranteed deposit strategy.
Given the market circumstances, what investment vehicles should be considered?
One potential answer to the depositor’s dilemma is an investment in a money market account with the right financial institution. Used for the short-term — for instance, with assets up to one year — and FDIC insured, deposits in a money market account offer an alternative to higher-risk investments.
A good banking relationship is also essential. Have a bank that knows and understands your business and is willing to work with you to identify ways to help your business grow. The bank should recognize what your business is bringing to the relationship, but at the same time your business needs to understand what the bank is bringing to the table. If your bank is truly a partner, as opposed to a financial adviser or a receiver of your funds, your business can reach its goals. Invested with a well-chosen financial institution, a money market account could be just the right solution to your deposit dilemma in this year of cautious optimism.
Insights Banking & Finance is brought to you by Manufacturers Bank
