We have received questions over the past few weeks about the recent bank failures that are dominating the financial news headlines. In this week’s Master’s Minute, I will summarize the questions that we have been receiving and provide our response to these topics.
• Are the recent banking issues a wider spread problem that could lead to significant economic challenges? This is what everyone is trying to determine, and currently, there is no way to know for sure. The early signs are that this is an isolated issue at a few regional banks. These banks were overexposed to long-term bonds and when interest rates rose rapidly, they found themselves with significant losses on their bond portfolio. Over the last several months, Silicon Valley Bank had a high concentration of tech companies as bank customers, who had to draw down their bank deposits in order to run their businesses. Silicon Valley Bank was forced to sell their long-term bonds at a loss which in turn caused the bank to become insolvent. While other banks may have losses on long-term bonds as well, as of now, the unique set of circumstances that caused Silicon Valley Bank to fail seem to be limited.
• Should I consider doing something different with the money I have in the bank? If you have less than $250,000 in an individual bank account or $500,000 in a joint account, you are protected by FDIC Insurance, and do not need to be concerned about losing money in the bank. We believe it is always prudent to make sure that your bank deposits are protected by FDIC Insurance. If you find yourself with bank deposits beyond the FDIC Insurance limit, we can help you develop a cash management strategy that reduces or eliminates the unlikely risk that a bank failure wipes out a portion of your cash.
• Considering the recent bank problems, should I be doing something different with my investment portfolio? We do not believe it is prudent to base investment decisions on short-term current events. As we saw last week, the stock market can swing rapidly one way or the other in the short-term. The factors that drive our investment decisions are based on decades of investment market analysis; the most notable being that long-term investors are going to have the highest probability of a positive investment experience when they stay invested in a well-diversified portfolio for a long period of time. For this reason, we believe that making knee-jerk reactions to the most recent highlines will often lead to disappointing investment results, especially over any significant period of time.
As always, we are here to help guide you through whatever financial landscape you find yourself in. We are always happy to answer general questions about the financial markets or something specific to your financial situation that you are contemplating. We consider it a privilege to be your financial guide and greatly appreciate your trust and confidence in the Master’s team.
How can we help you with the financial decisions and questions that are currently on your mind?
If you would like to take a deeper dive into the collapse of SVB, click here to access a Whitepaper from our research team at Advisor Group.