Silicon Valley Bank gives us another reason to panic and freak out over our financial future. The FDIC seized the sixteenth-largest bank in the country on Friday, the second-largest bank takeover in US history. At the time of the collapse, twenty-two Wall Street analysts rated the stock a buy or hold, and Jim Cramer urged investors to buy it last month. It was a stellar performer until its collapse, rising more than 80,000 percent since going public, but now it's gone – risk happens fast!
Silicon Valley Bank is the first bank failure since 2020 when four banks went belly up. The FDIC annexed 510 banks from 2007 to 2014, representing $700 billion in assets, and the current bailout is $209 billion.
Honestly, I'm tired of writing about bank failures, stock market crashes, and financial calamities. Unfortunately, they're embedded in our history and will continue for the foreseeable future. Despite constant headwinds, the stock market has been resilient. In the last twenty years, the market has recovered from the Tech Wreck, the Great Financial Crisis, and the bankruptcies of Lehman Brothers and Bear Stearns. In fact, since Lehman and Bear Stearns imploded in September 2008, the S&P 500 is up 124%.
In the meantime, here is a list of items you can employ to protect your family's assets.
- Buy US Treasuries because they're insured and guaranteed regardless of how much you invest.
- Review your cash balances held at your bank. The FDIC limit is $250,000 per person, per institution, and per account. If your balance exceeds the threshold, open a new account or buy US Treasuries. According to the FDIC website, no depositor has lost a penny of FDIC-insured funds since its founding in 1933.
- Reduce or eliminate your debt, regardless of the current interest rate. If your debt level is low, you can withstand a financial storm.
- Buy physical real estate. My grandfather loved real estate and hated stocks despite my arguments that stocks can produce significant returns. He owned several homes, commercial properties, and a couple of ranches, and he did not panic when stocks dropped or banks failed. Real estate is a good inflation hedge that can generate substantial rental income and is excellent for transferring assets between generations. And you already know the key to successful real estate investing: Location, Location, Location.
- Diversify your asset across investment categories, countries, etc. A globally diversified portfolio of stocks and bonds gives you access to thousands of investments designed to grow and protect your wealth over time.
- Avoid single-stock exposure. Silicon Valley Bank wiped out thousands of shareholders in less than 48 hours, and I can give you a long list of companies that evaporated overnight. Instead, invest in mutual or exchange-traded funds to reduce your risk from individual stocks. The Invesco Small Cap Value fund (VSRAX) held a 1.50% position in the bank stock, and the fund was down less than 1% on Friday because it owns more than 112 securities.
The recent bank failure adds to a list of issues the stock market has dealt with recently, including COVID, the Ukraine War, and political turmoil. Still, it continues to rebound and recover, as it has historically. Today's events will barely register on a long-term stock chart in a decade or two. For example, the October 19, 1987 stock market crash is but a blip on the chart below.
Markets like to climb a wall of worry, and many successful investors recommend buying when others sell. For now, follow your plan, think long-term, and good things will happen.
If you the bank $100, that's your problem. If you owe the bank $100 million, that's their problem. ~ J. Paul Getty
March 11, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
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