Passive money management a thing of the past

The days of passive money management are in the rearview. And, very few investing or income-accumulating Americans have experienced an environment quite like this before.

From the financial crisis of 2008 through the pandemic, the Fed created essentially a zero-rate environment. There were a few shifts, but all between 0% and 1%, which impacted how people looked at returns on their money.

"The environment you grew up with is a thing of the past," said Scott Grauer, executive vice president of wealth management at BOK Financial^® and chief executive officer for BOK Financial Securities, Inc. "In 2008 and the years that followed, if you had money to set aside for college, retirement or buying a home, the right thing to do with the money was to invest it in a broadly diversified index type strategy. If you could do that at the lowest cost available, your return was predictable and consistent because we had basically no market volatility during that period of time."

But all that changed with the pandemic—when market volatility returned with a vengeance.

Interest rates have been rising since March 2022, when the Federal Open Market Committee (FOMC) started hiking the Federal Funds rate to combat inflation. That's the rate that banks charge each other to lend money, so interest rates paid by consumers and businesses on debt tend to rise along with it. Most recently, on May 3, the FOMC announced that the Federal Funds rate would rise by another 25 basis points (one-quarter of a percentage point) to a target of 5 to 5.25%.

"That passive strategy that worked for 12 to 15 years was the best approach for some investors for many years," said Grauer. "In a volatile market place, active money management is crucial. You can't put it on autopilot. You should be engaging with your advisor around a strategy that involves active money management and appropriate solutions that serve you during this volatile higher-rate environment."

Rates impact investments and deposits, but the rate environment is equally important for credit and borrowing decisions. You can no longer ignore interest rates on cash.

"Because things have been unchanged for a number of years, we've all accepted certain things as incontrovertible truths," said Carrie Clasen Porter, chief operations and administrative officer for wealth management at BOK Financial. "In reality, they were conditional. Now, we're all entering new territory, and that comes with a period of re-education."

She also encourages people to reach out to a financial advisor to talk about the new rate environment, consequences and opportunities. Clasen Porter suggests beginning by discussing:

• What your actual overnight liquidity/cash flow needs are versus what can be allocated toward short- and long-term strategies.
• Any tax considerations that come with a new short- and long-term strategy.
• Overlooked options like CDs, adjustable rate mortgage or variable rate loans.

"Most adults have received some bad information," said Clasen Porter. "And the value of adjustable rate mortgages is one of the biggest areas of misconception. Because of some predatory practices back in 2008, these were seen as inherently bad, but they're actually a great, strategic option for many people."

She added that adults have been conditioned to think you don't earn any money on your money in a bank and that if you put it into a brokerage account it's hard to get to. And neither of those are true.

"Essentially, now is the time to take a hands-on approach to managing your money," said Grauer. "We're encouraging clients to review their goals and work with us to put in place the best strategy to get there."

He said whether you're more conservative or speculative, a seasoned investor or a new day trader, investors of all stripes may need support in getting up to speed based on the current economic situation.

"Now is the time to dive into an entire spectrum of products and financial solutions that have been on the sidelines for the past decade or longer," he said.