At this point, you’ve likely seen headlines (or heard from friends and neighbors) about Silicon Valley Bank (SVB). If you’re interested in getting up to speed, here are a few articles that explain what’s going on:
Why Did Silicon Valley Bank (SVB) Fail? (forbes.com)
Silicon Valley Bank (SIVB) Bank Run: SVB’s Collapse Explained – Bloomberg
Silicon Valley Bank shutdown: How it happened and what comes next (nbcnews.com)
Most of this information is exciting as the media stokes speculation and political debate, but it can be difficult to make sense of how this impacts your own financial plan. Since the actions of the banks, government, and fed are outside of our control, we’re not going to try to weigh in on who is at fault or what they should do next.
Instead, here are a few useful reminders from this developing story that apply to your plans and our pillars:
The role of FDIC insurance: Most of the money that our clients keep in their savings accounts (for contingency reserves and upcoming opportunities) is FDIC insured. FDIC: Deposit Insurance At A Glance provides a breakdown of the insurance coverage and breakdowns.
The risks of “stretching for yield:” When investors chase income with high dividend stocks or lower quality/longer duration bonds, the higher yield usually comes with a tradeoff (lack of diversification, low growth potential, potential default risk, interest rate risk, lack of liquidity, etc.). SVB was burned by unfortunate timing when they stretched for yield in their underlying portfolio that left their investments exposed to a rising interest rate environment. Rather than stretching for yield, we believe in focusing on a diversified total return approach.
The unpredictability of the news cycle: This is just another unpredictable and unique headline that tests our discipline as investors. Each headline comes with its own implications of varying nature and magnitude, and it’s natural to get spooked. Since we can’t predict what’s going to happen in the news cycle, we prepare for all kinds of market conditions. By maintaining thoughtful asset allocations and establishing multiple buckets within a household’s broader financial plan, we try to take the emotion out of investing.
As friends, we can debate what the Fed and Treasury Department should do next. But as planners, we’ll just focus on what we can control. Don’t hesitate to reach out if you’d like to discuss how these concepts apply to your plan.
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Investment Advice offered through FC Advisory, LLC, a registered investment adviser doing business as Financial Coach and also doing business as New Wealth Project.