With the shutdown of Silicon Valley Bank (SVB), you may be asking what steps you can take to protect your finances. We would like to provide a brief overview of the steps you may want to consider.
Insured Bank Deposits
We strongly recommend keeping your bank balances at any institution below the FDIC-insured limit of $250K. The $250K limit applies to the combined balances of both bank deposits and CDs (Certificates of Deposit). Accounts held in the name of an individual are subject to a limit of $250K of insurance, while accounts held jointly by two individuals are subject to a limit of $500K of insurance. You can refer to this tool by the FDIC to review your insurance coverage.
FDIC coverage on trust accounts varies depending on the type of trust, number of beneficiaries, and other conditions, and it is best to use the tool linked above to check the FDIC coverage amount.
If you wish to keep a bank cash balance over $250K, you can maintain insurance coverage by opening accounts at multiple banks below the insured limit. Opening multiple accounts with the same account ownership at a single bank will not result in coverage over $250K.
Treasury Investments
For cash balances above $250K that you do not wish to keep at banks, an alternative is to own U.S. Treasury investments. While Treasury investments are not insured investments, they are backed by the U.S. federal government. Treasury investments may be in the form of a money market fund that seeks to maintain a stable value and earn a yield similar to a competitive bank account. Alternatively, one can invest in individual Treasury notes, which have maturities of 2 to 10 years, however, it is important to consider that Treasury notes are subject to variability in price primarily in response to changing interest rates. Treasury money market funds and Treasury notes are available for purchase at most major brokerages, including Schwab and TD Ameritrade.
Portfolio Considerations
You may be asking how the closure of SVB drives changes to our investment strategy, or how it impacts the value of your investments.
To provide perspective on the magnitude of the impact of SVB’s closure, an investor with $1 million invested in the global stock market would have had ~$80 invested in SVB a week before the crisis. As our portfolios incorporate strategies emphasizing companies with higher profitability, the typical client would have a lesser proportion invested in SVB.
Stock markets responded to the news by reducing the value of financial companies broadly, which may be an overreaction in anticipation of greater stress within the financial system. While a handful of smaller banks are currently stressed, regulators are likely to be stricter with them in response to current events, and the largest banks remain relatively well-positioned in the face of future stresses. Bond markets responded by pricing in the probability of fewer interest rate increases in the future, as the Federal Reserve may be compelled to raise interest rates more cautiously as the impact of increased rates is felt across the economy.
Earlier in the year, we adjusted our bond investments to incorporate Treasury investments with the goal of providing greater stability in severe market downturns and modestly reducing the amount of credit risk in portfolios. We do not anticipate any changes to portfolios as a result of the SVB news, as portfolios remain well-positioned for long-term goals with a balance of investments across stocks, bonds, and alternative investments.
If you have any questions regarding your investments or this message, please reach out to us, and we would be glad to discuss them with you.
You could lose money by investing in Money Market Funds, Treasuries, or any investment mentioned in this article. An investment in Money Market Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. A Money Market Fund’s sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time. Most Money Market Funds seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. While FDIC insurance amounts are mentioned here as a guideline, actual FDIC coverage limits should be verified with the depository institution.
This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments, and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.
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