Top 5 Economic Developments & Wealth Management Considerations for Tribal Nations

Top 5 Economic Developments & Wealth Management Considerations for Tribal Nations

April 10, 2023

It’s no secret to Tribal Nations that the typical recession of the American economic cycle has a significant impact on Indian Country. Looking at current economic indicators and movement, REDW Wealth Management experts have compiled considerations for Tribes in managing investments through 2023’s top 5 economic developments.

Listen to our podcast on this topic, Midyear Inflation & Investment Check-In

1. An Impending Recession

A recession is expected in 2023 and Tribes should prepare for lower revenue with reduced economic activity. Many economists are expecting a contraction in the US economy to occur in the second half of 2023. Those Tribes with significant dependence on their commercial enterprises should reduce their growth forecasts in 2023 and adjust their expectations going forward. We were fortunate to have some strong economic growth coming out of the 2020 pandemic recession, but we’re now on the verge of entering the contractionary phase of the economic cycle from the previous economic expansion.

2. Decreasing Inflation

Inflation remains elevated but is expected to decrease in 2023. With its sharp rise in 2022 to a 40 year high of 9%, inflation has been in the crosshairs of the Federal Reserve to get it under control. In 2022, the Federal Reserve increased interest rates from 0% to 4.5% – one of the fastest increases in decades. As a result, inflation has slowed to 6% and is expected to continue its decline through 2023. Although inflation is declining, it’s important to note that it is still high, and prices are still increasing, albeit at a decreasing rate. As a result, Tribes should consider an above average increase in costs in 2023.

3. High Interest Rates

Interest rates are at multiyear high. With the Federal Reserve rate increases, short-term rates are above 4.5% and longer-term rates over 3.5%. These are significantly higher than they were in January 2022, which helps Tribal governments when they invest to earn income from their investments. For instance, a Tribe can invest $50 million of their cash into a 2-year United States Treasury note with a yield of 4% and earn $2 million in interest income each year. $2 million in annual interest income is significant and can serve as a huge benefit for Tribal government budgets in 2023. This can apply to Tribal restricted funds as well, but some restrictions and conditions must be met to remain in compliance. Tribal CFOs and leaders are encouraged to plan out cash flows, research restrictions, or contact REDW Wealth Management advisors for assistance.

4. Market Volatility

Valuations on equities and fixed income securities came down in 2022 to a better level than they were in 2021. In 2022, bonds had the worst year on record with major bond market indices dropping as low as 17%. Equities suffered a blow in 2022 as US stocks fell as much as 25%. Although volatility is expected to continue in 2023, stocks and bonds are well off their highs with more reasonable valuations to get invested.

5. Urgent Need for Asset Protection

Asset protection is key with the recent bank failures. In the case of Silicon Valley Bank, depositors were struggling to determine whether they still had assets in excess of the FDIC insurance of $250,000. It’s extremely important and prudent for Tribes to protect their assets in the case of a bank failure. Tribes with cash balances in excess of the FDIC insurance coverage should consider collateralizing their bank deposits with U.S. government securities or investing directly in U.S. government securities.

Need Help Understanding What to Consider for Managing Your Investments?

You’re in the right place. For 40 years, REDW has served Tribal Nations with great respect to Tribal sovereignty and culture. As fee-only fiduciary advisors, REDW Wealth Management professionals are ethically and legally bound to serve our clients’ best interests and we welcome your questions. Contact an REDW Wealth Advisor today.

© 2023 REDW Wealth LLC. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice. Information and instruction shared in the article above do not guarantee outcomes, performance, or quality of services provided to REDW Wealth Management clients by REDW Wealth Management or its employees. Adherence to our fiduciary duty is not a guarantee of client satisfaction or any particular outcome. Advisory, Assurance, and Tax is offered through REDW LLC. Wealth Management is offered through REDW Wealth LLC.

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