170: Silicon Valley Bank Collapse: Is Another Financial Crisis Coming?

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson. 

Austin Wilson: 

All right. Hey, hey, hey. Welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. I am Austin Wilson, Research Analyst at Hixon Zuercher Capital Management. 

Josh Robb: 

And I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast? 

Austin Wilson: 

We would love it if you’d subscribe if you’re not subscribed, so you get new episodes when we drop every single Thursday. Hit that plus, follow, whatever that button is on your podcast player, so you get new episodes. Also, visit our website, sign up for our weekly newsletter to get notified with an email every Thursday when those episodes drop with some nice show notes and links and stuff. 

Josh Robb: 

That’s right. 

Austin Wilson: 

So check that out. So today it’s big news, Josh. 

Josh Robb: 

Yes. 

[0:56] – What Happened to Silicon Valley Bank? 

Austin Wilson: 

Everyone’s talking about it, so we’re going to talk about it. Silicon Valley Bank, how it failed and what you need to know as an investor and consumer. So, there’s a lot to talk about today. So, this is the second-largest bank failure in U.S. history. 

Josh Robb: 

Yes. So Silicon Valley Bank had $209 billion in assets at the time of the failure. And so that makes them the second-largest bank in U.S. history to fail. They’re second to Washington Mutual, which failed back in the ’08, ’09 financial crisis. They were early in and that’s kind of what was the springboard for a lot of these issues. And they had $307 billion when their bank failed. 

Austin Wilson: 

Absolutely. So let’s dig into what happened. 

Josh Robb: 

Yes. 

Austin Wilson: 

So firstly, it’s important to understand that Silicon Valley Bank didn’t really fail in the terms that things in ’08 failed. 

Josh Robb: 

Yes. It was a different type of- 

Austin Wilson: 

A different type of failure. Really in ’08, it was about loans. A lot of it was bad loans, over-l’severaged loans. 

Josh Robb: 

You think different type of failure. It’s like when you’re coaching a team, you’re like they scored more than us. 

Austin Wilson: 

Ya. 

Josh Robb: 

We just didn’t score enough. 

Austin Wilson: 

That’s right. 

Josh Robb: 

I don’t know. 

Austin Wilson: 

That’s exactly right. 

Josh Robb: 

“Our defense was great, but our offense was not good.” Different type of failure. 

Austin Wilson: 

So typically when you think of a bank failing, you think of what happened in ’08. You think of loan losses… 

Josh Robb: 

They did bad loans. 

Austin Wilson: 

… driving what’s happening with these banks. But in fact, loan loss reserves, which are reserve money set aside by the bank to cover losses on loans, that was only 0.86% of their total loan portfolio- 

Josh Robb: 

0.86%. 

Austin Wilson: 

Which is a really, really low rate. And in fact, it’s just crazy for a bank of that size to have such low loan loss reserves but they didn’t have bad loans. That wasn’t the issue. 

Josh Robb: 

They didn’t have bad loans. 

Austin Wilson: 

They’re not sitting on a bunch of bad loans. They also were not heavily leveraged. Another thing that happened in ’08, these banks were heavily leveraged. 

Josh Robb: 

Yes. 

Austin Wilson: 

So they were very much extended indebted. And then when it came time to pay the piper, well, they were underwater, right? That’s what happened in ’08. Well, this bank was only at 13:1 leverage. So that’s looking at assets to equity, comparing assets to equity there, which is not an extreme amount of leverage when you look at banks. They were much higher when we ran into those issues in 2008, 2009. So what did happen was that Silicon Valley Bank was a victim of its own success in the zero interest rate world that they were in. 

So what happened was their business was all about locking in tech employees, tech startups, tech founders and leaders, giving them commercial and personal loans if they agreed to bring the majority of their cash in business requirements to Silicon Valley Bank. So they were trying to just get in the system. And they were. They were completely ingrained in the tech system in Silicon Valley and made a lot of deals out there. But it wasn’t all about lending as much. It was just being the go-to bank for tech. 

So not crazy leverage, not sitting on a bunch of bad loans. But what we must remember during this zero interest rate world that we’ve lived in for a long time is that there was a lot of money in Silicon Valley, a lot of easy, cheap debt, cheap cash, cheap money. And that’s not exactly the world we live in now. But for the past decade and a half, that was the case. So there was a lot of cash that was funding startups and venture capitalists. And tech employees were making big money. 

The interesting thing here is that all these companies and people, they were putting their money at Silicon Valley Bank, not all, but a lot. 93% of the balances at this bank were uninsured, and that means that they were in excess of the $250,000 FDIC cap of protection. 

Josh Robb: 

Now that seems high. 

Austin Wilson: 

It does. 

Josh Robb: 

And I’m assuming most banks don’t see that. You probably don’t have 93% of your balances above 250. 

Austin Wilson: 

True. 

Josh Robb: 

So yeah, that’s crazy. 

Austin Wilson: 

And they were trying to get you to bring all of your money there. That’s kind of how it was. 

Josh Robb: 

But they’re probably paying next to nothing. 

Austin Wilson: 

They were for a long time. 

Josh Robb: 

Yeah, that’s crazy. 

Austin Wilson: 

Maybe slightly more than next to nothing, just to attract more people. 

Josh Robb: 

But still crazy. 

Austin Wilson: 

But they wanted to be the one stop shop for tech, and that’s kind of how that happened. So think about this. They had billions of dollars of cash deposited, not paying a whole lot on it because they didn’t have to. Interest rates were low, but they wanted to earn more than they were paying out on that money. So what do you go do? You got to buy something. 

Josh Robb: 

Yeah, you sit on all this cash. 

Austin Wilson: 

You got spend money to make money. So you’re going out and you’re taking your customer pool of cash. This is a legal ethical thing that all banks do, taking your pool. 

Josh Robb: 

Yep. And they bought Bitcoin. 

Austin Wilson: 

Yeah, they bought Bitcoin. No, they actually took it out and they bought bonds. 

Josh Robb: 

So they’re being prudent. 

Austin Wilson: 

Right? Bonds aren’t risky. 

Josh Robb: 

Yes. 

Austin Wilson: 

We’re going to get to that, talk about last year. But they bought interest bearing bonds. So at the peak, the deposit pool was worth about $200 billion, which they then took that 200 billion, they went out and bought 128 billion. 

Josh Robb: 

So they kept some in cash, which is what they need to do, banks are required to do. 

Austin Wilson: 

Yes. There’s a liquidity requirement there. And they went out and bought a big bunch of bonds with that. The vast majority of securities purchased with the influence were long-term bonds. Long-term bonds are the most interest rate sensitive bonds, by the way. 

Josh Robb: 

Yeah they struggle a bit in a rising interest rate. 

Austin Wilson: 

You really, really should not be putting… 

Josh Robb: 

No. 

Austin Wilson: 

I actually saw a breakdown of maturity duration of what we’re talking about here and different banks’ portfolios, and theirs is way longer. 

Josh Robb: 

Yeah. 

Austin Wilson: 

Which means that they were most impacted by price. 

Josh Robb: 

And holding to maturity means they’re planning on not getting that money back for a long time. 

Austin Wilson: 

Yeah, exactly. This was a 20-year bond, 30 year, 10 year, whatever you’re talking about, it’s long. So anyway, they’re planning on holding these to maturity, but what’s interesting is that on your bank’s balance sheet, bonds that they’re planning on holding to maturity are not marked to the market. So Josh, talk a little bit, just briefly, five seconds on mark to the market accounting. 

[6:41] – What is Mark to Market (MTM) Accounting? 

 Josh Robb: 

Yeah. So what that means is, and this is really coming out of the ’08, ’09 crisis is where this came to, is for a long time you had a lot of these assets that if you couldn’t adequately price on an ongoing basis, you would say, “Here’s what I paid for it.” And you would just leave that on your balance sheet. And you would say, “I’m not going to adjust the price or the value of it because I don’t care. I’m going to wait until the end.” 

Austin Wilson: 

At the end it’s going to be matured.” 

Josh Robb: 

So again, if we’re talking bonds here, and these are what banks are holding. Is if I bought a bond for a $1,000, I would on my balance sheet, say, “I have a bond for a $1,000 and I’m getting interest on that.” But the liability there is I gave up a $1,000 for a while, it’s no longer available to me to use for my deposits and things. 

Austin Wilson: 

Knowing you’re going to get a thousand dollars for it at the end. 

Josh Robb: 

Knowing, since it’s held to maturity, I’m planning on… 

Austin Wilson: 

You’re getting a par. 

Josh Robb: 

… I’m going to get back my thousand dollars, in my example, plus whatever interest I collected along the way. So it’s not like they were trying to hide anything. When you’re planning to hold maturity, the fluctuation and value is irrelevant because I’m going to get back my face value of that bond that I purchased. So that’s what they’re doing. Mark to market says, “At least at some periodic interval, I need to adjust the price based on what currently is so that if there was a need for it, I would know exactly what I could get for it.” 

So in a good market, if it goes up in value, I would mark to market and now I have appreciation. That’s a good thing. In a down market, I would’ve value or adjusted down. Again, my example, put a thousand dollars in, I bought this bond, interest rates go up, bond prices go down. Now I have a $900 asset when I paid a thousand. So I’m down a hundred dollars. But again, I’m holding to maturity. So that’s just a adjustment to the value… 

Austin Wilson: 

Temporary. 

Josh Robb: 

… even though I’m going to get my thousand dollars at the end. So mark to market is just adjusting the value interim. That didn’t change their intent, it just changed the assets’ value on their balance sheets. 

Austin Wilson: 

Now, what we’re going to dig into shortly is the impact of the mark two market accounting and what that took bond value to. So we’re going to get to that in a sec. But here’s essentially what happened here. So the combination of rising interest rates, which you just alluded to, lower bond prices, we saw that last year. 

Josh Robb: 

And let me explain that too. So if I have a bond, let’s say it’s a one year bond, and I’m going to choose round numbers just for easiness, and it’s paying 2%. 

Austin Wilson: 

Yep. 

Josh Robb: 

All right. And I bought that in January, and then a month later a new one year bond is coming out because interest rates went up and now it’s paying 4% my bond, if I went to sell it, “Why would someone want to buy something yielding 2% when you can get a new one for four? That’s why bond prices go down when interest rate goes up, because now I got to offer something to entice people. 

Austin Wilson: 

Which is a discount impact. 

Josh Robb: 

Which is to discount what mine is worth. So now maybe I will pay less for lower interest rate, but then I have more cash to buy things with. 

Austin Wilson: 

So another example of that is how inflation impacts bond prices. So we’ve just in the process of phasing out, we’re coming down off of inflation. We’re still in an inflationary environment, but last year inflation was very, very hot, 2022. So if you think about bonds, bonds are a fixed income security. So you are receiving a fixed income for the locked up capital that you’ve lent to whoever you’re lending to. So what happens is when inflation is hotter, that means that your fixed income piece is a lot less attractive. 

So if your income’s fixed, that’s not going up to counteract inflation. So people were selling bonds all this whole time last year, which is one of the reasons interest rates shot up so much. So that’s the both two sides of that same coin is what happened to the market orient. So you combine rising interest rates due to high inflation, the fed, all those things causing lower bond prices and negative bond returns, which meant lower value of bonds on this balance sheet specifically and falling deposits, because money became a lot less easy. Startups and venture capital firms, they were a lot less itchy to have a bunch of cash and to be depositing it at a bank like this. 

Josh Robb: 

And you saw layoffs in the tech industry at the end of last year, earlier this year all the way through. 

Austin Wilson: 

Exactly. 

Josh Robb: 

And so that’s causing a slowdown in general. 

[10:49] – The Fed Steps in to Insure Depositors 

 Austin Wilson: 

Absolutely. So if you combine those two pieces together, that means that Silicon Valley Bank had to sell some of their bonds they’re planning on holding to maturity before they were matured, essentially locking in losses. So that’s exactly what happened. This really caused them to have more deposit outflows and eventually their failure. Now, I will note that on Monday, March 13th, 2023, which is actually the day we’re recording this, insured depositors, which are those holding $250,000 or less, will be able to transfer balances to other financial institutions. 

But what will those holding in excess of the FDIC insured $250,000, what are they going to get? Here’s really the nuts and bolts of it is. I’m just going to make this pretty high level. At the end of 2022, the company, Silicon Valley Bank, in their 10K, on page 125 if anyone’s interested. 

Josh Robb: 

Oh, I was almost to there. Okay. 

Austin Wilson: 

Exactly. They had 17% losses for its held to maturity securities. So 17%, call it 17, 18, kind of in that ballpark. So at the end of the day, you’re locking in a 17% loss if you have to sell all those assets. Which you’re going out of business, if someone’s buying them, you’re going to have to sell them. As long as Silicon Valley Bank’s loans are worth at least 82, 83 cents per dollar, depositors are essentially going to get paid out in full at some point. It will take time for all of this to work out. That’s just the key right there. 

It’s really estimated, and this is a number from a data provider called Bespoke that we subscribe to here in the office, it’s estimated that roughly two-thirds of deposits looks certain to be recovered. That’s really good, two thirds, with another third of that extra one third that are left, quite possibly recoverable. There may be some losses out there still, and that is just the risk of this piece. So in a nutshell, that is where we are today. 

Josh Robb: 

And tell me, the Fed is saying everybody in FDIC is getting their money back, but that’s what the insurance is for. They’re trying to get all the stuff above that as well. 

Austin Wilson: 

Yeah, and I’m going to get to that after your dad joke of the week. 

[12:56] – Dad Joke of the Week 

 Josh Robb: 

Okay, good. All right, dad joke. So I wanted to find a bank one, all right? 

Austin Wilson: 

Take that to the banks. 

Josh Robb: 

So have a friend, bank teller, he lost… 

Austin Wilson: 

Do you actually, or is this just a joke? 

Josh Robb: 

This is a joke. 

Austin Wilson: 

Okay. 

Josh Robb: 

He lost his job the other day. 

Austin Wilson: 

Oh, man. Did he work at Silicon Valley Bank? 

Josh Robb: 

He was not there. Was for a whole nother reason. He lost his job because this lady asked him to check her balance and he pushed her over. And I think he was confused with what she really wanted. 

Austin Wilson: 

Careful what you ask for. 

Josh Robb: 

So she was not happy that. 

Austin Wilson: 

Yes, be careful what you ask for. 

Josh Robb: 

Different balance wanting to be checked. 

Austin Wilson: 

Exactly. Exactly. 

Josh Robb: 

So there you go. There’s my bank joke for you. 

[13:27] – Why is Silicon Valley Bank’s Collapse So Unusual? 

 Austin Wilson: 

That’s a good bank joke. So let’s talk about some other interesting comments about what is occurring here, because there are some nuances that I think are worth pointing out. Number one, the bank closed in the middle of a day. While I was trading, middle of a business day. That’s unusual. 

Josh Robb: 

Lock door. 

Austin Wilson: 

Usually these things kind of happen, A, over a course of time. Or B, on a weekend or something like where there are not business open. But happened in the middle of the day, very unusual. Another note, at the end of 2022, Silicon Valley Bank only offered 0.6% more on deposits than its peers, but that does not really take into consideration the risks that were out there that the people who were depositing with them really did not think about clearly. 

But despite this many companies held way more than their insured amount. Now in 2021, that premium was only 0.04%, so small. And yet people are taking billions of dollars to them. That’s crazy. Another thing, they were kind of on their own in terms of the level of their loans plus securities as a percentage of deposits, which really meant they were not very reliant on retail deposits because of the way that was there. 

So they’re niche. They were a niche investor with Silicon Valley and tech as their kind of mantra. That’s all they were going for. They were going for big tech. So they set their selves up for a large potential capital shortfall anytime interest rates went up because of how risky and long duration their bonds were, which was something that was a big problem for them. And again, as a point that we’re going to continue to make, this did not occur due to credit risk issues. In ’08, we were living through a financial crisis that was due to credit issues. This is an interesting one that is not. It’s all about a mismatch between really good assets and liabilities and investing that capital in a way that was inappropriate. 

Josh Robb: 

Yeah, because really the bank, although there was a drop in value, they hadn’t really lost any money with their goal being to hold maturity. They just lost their cash flow because there was higher withdrawals than they were bringing in. 

Austin Wilson: 

Exactly. 

Josh Robb: 

And they had to sell to get to the end result. 

Austin Wilson: 

Now, what’s interesting is if you think about how this all occurred and how this money became a behemoth and really did well during this period of zero interest rate, that was where they were getting easy and fast cash and loans and money for venture capitalists and tech firms and all this stuff. Well, they were thinking they were riding high on the horse. This was as good as it could get. But at the end of the day, monetary policy tightened up and now they’re out of business. This proves that this zero interest rate world and really loose and easy monetary policy actually ended up being more of a curse for the company than it was a blessing. 

Here’s another interesting one. According to Fortune Magazine, Silicon Valley Bank’s Chief Risk Officer left the company last April and was not replaced for eight months. 

Josh Robb: 

Oh man. End of last year. 

Austin Wilson: 

So this whole year they’re going without a Chief Risk Officer, obviously having a lot of risk on their balance. 

Josh Robb: 

Apparently. 

Austin Wilson: 

This is a big risk. So that’s interesting and noteworthy. And another one is that there’s a stable coin. So stable coins are essentially cryptocurrencies that are meant to hold a stable value. 

Josh Robb: 

Which they don’t, but go ahead. 

Austin Wilson: 

They often don’t. So there’s a stable coin called Circle. So Circle reportedly has 3.3 billion of its $40 billion in reserves tied up in Silicon Valley Bank deposits. So this is really part of a broader issue about the cryptocurrency space where they don’t necessarily have to have fully audited disclosures on their reserves. And this could be a big issue. If you’re trying to withdraw your Circle, you may not have access to it because it might be tied up to cash that’s inaccessible. 

Josh Robb: 

That’s crazy. 

[17:23] – How Will This Impact the U.S. Economy? 

 Austin Wilson: 

Craziness. So we’re going to talk about economic impacts of what’s going on right now. So number one, the Fed obviously is driving a lot of this because there’s zero interest rate policy on one hand caused a lot of this and their tight monetary policy stance today really just put the nail in the coffin of what’s happening. 

Josh Robb: 

Do you think this was anywhere in their considerations when they were raising interest rates to counter inflation, that they considered the financial sector and banks holding bonds? 

Austin Wilson: 

I think so, but they would point to the fact that they make banks do stress tests a lot. And I think they would also point out that the vast majority of large U.S. banks perform very, very well on stress tests. That being said, I think the Fed has been willing to go tighter and tighter and tighter in their Montessori policy stance until something broke. Guess what just happened? Something finally broke. We were waiting on something to break and something breaking is what really probably was going to tell them. “Okay, I think we’re pretty darn close to where we’re going.” 

So let’s talk about what the markets are pricing in now. So yes, they broke something. And in fact, they already stepped in and you were talking about this earlier, but they stepped in with a loan program to inject new liquidity into banks facing similar problems. So smaller banks, generally speaking, who have these similar liquidity positions, there is a special loan program that just got released on Sunday night where, based on if you meet these certain criteria and yada, yada, yada, you can go take advantage of very affordable loans to be able to meet your withdrawal requirements, just so this sort of thing doesn’t continue to happen and become a contagion, right? 

Josh Robb: 

‘Cause again, we look at Silicon Valley Bank. They had the assets, they just were down in value at the point where there was an increase in withdrawal requests. And so what the Fed is setting up is saying, “Hey, so you don’t have to sell all these things that were supposed to be long-term maturing. You’re doing a prudent job. We raised interest rates quickly which caused those longer term bonds to really adjust in price. We will give you a program that, in a sense, we’re just going to give you liquidity. When those mature, you could pay us back.” Everybody’s happy, good to go. 

Austin Wilson: 

Try and keep things afloat. Now, I will note that this is not a bailout for Silicon Valley Bank. 

Josh Robb: 

No, they’re done. 

Austin Wilson: 

They have messed up. 

Josh Robb: 

And they’re done. 

Austin Wilson: 

And they’re done. So in fact, other banks are vultures right now trying to buy up all these loans and everything… 

Josh Robb: 

Because they’re good. 

Austin Wilson: 

… they hold because they’re pretty good and they’re at a very big discount right now. So I know Goldman Sachs bought 2 billion of loans off their balance sheet because it’s a great deal. Take advantage of it while you can. So that’s interesting. So let’s talk about the impact to Federal Reserve interest rate policy. So interest rates dropped late last week on really economic fears because the financial system’s breaking, right? The market went from pricing in three rate hikes and then holding the rest of the year to actually maybe about one hike now? 

Josh Robb: 

Mm-hmm. 

Austin Wilson: 

Only about one, and that’s not even a given. You could have none. And in fact, when in the morning of Monday morning, it was actually almost a coin toss on whether you’d have none or one. Craziness. It’s actually leaning more towards one now. And actually pricing in up to two, two and a half cuts by next January again. 

Josh Robb: 

Oh wow. And there was none for a while, right? 

Austin Wilson: 

No, and we were talking about cuts for a while, then it was nope, the market finally got to the point where we’re not talking about cuts, now we’re talking about – 

Josh Robb: 

Showing back up again. 

Austin Wilson: 

Here’s another opinion of mine. Liquidity in general right now as we’re finding out through this story, harder to come by for startups, harder to come by for venture capitalists, those sort of things. Bunch of cash, easy, free money, those kind of things. In my opinion, this is actually semi-bullish for things like Mega-cap tech, not a recommendation to buy it, but these companies have a lot of cash on hand. Hopefully they’ve diversified themselves. 

Josh Robb: 

Okay, where’s your cash? 

[21:29] – Are We in Another Financial Crisis? 

 Austin Wilson: 

Yeah, where’s your cash? But they’re not going to be competed with as much by new startups. So that’s super, super interesting in the way that this is playing out. Here’s the question for you, Josh. Are we in another financial crisis? 

Josh Robb: 

I don’t see it. My opinion is that the Fed stepped in very quickly. It was the weekend. They didn’t take time to think about it. They said, “You know what? The banking sector, which is the lifeline for our economy.” When it comes to if people are worried about cash flow, everything has a problem. That’s what we saw on ’08, ’09. We even saw that during COVID. Is that when they were worried they can’t get cash, then there was problems. 

And the Fed stepped in and said, “Look, we’re going to keep that going. We’re going to make sure banks have the liquidity they need.” So I think they got in front of a big financial crisis. Now, could this be the catalyst for a recession or a downturn? Possibly. But I think they got in front of a full scale financial crisis. Because really, like you said, it’s that domino effect of not just this bank, but what if it continues on? 

Because if people get scared and they go to their local bank and they kind of get this snowballing effect, that’s the problem. So I think the Fed did their best job they could to get in front of it and say, “Hey, look, we have this loan program. Banks are fine now. This one’s going to be dealt with, but in general, nobody else is going to struggle as much now because they have another option of getting cash.” So I think that helped. Your thoughts? 

Austin Wilson: 

Yeah, I don’t think it is to the level of a financial crisis at all. I actually think that if you look at almost every bank has bonds at losses on the balance sheet right now. However, most banks did a much better job, and we can see this by the duration in their portfolios, of managing interest rate risk better than Silicon Valley Bank did. 

So I feel like overall there may still be some smaller banks to go under. I think things are going to be in a good position. And I actually think that the capital and liquidity requirements and capital ratios of some of the largest banks, JP Morgan’s the largest one in the U.S., again, not a recommendation but it’s one that comes to mind. I’ve seen some of the numbers, even taking into consideration some of these losses on the balance sheet, their capital ratios are fantastic. Things like that, I think, are going to remain pretty stable. I’m optimistic that this remains contained, which is good. 

So now we talk about what’s going on in the markets here, obviously. So things have moved, equity markets sold off rather sharply. 

Josh Robb: 

Friday was rough. 

Austin Wilson: 

Friday was rough. Literally, the whole end of the week as this was working out was rough. Ironically, on the other side, bonds did well. People bought bonds, they were scared, sold stocks, bought bonds, and interest rates went down, right? Price went up. So bonds did okay through all of this. Some interesting areas of notes, smaller regional banks were some of the worst positioned and we just talked about that. But they were sold off worse than the broader market. 

Small caps in general, if you look at small cap indices, they underperformed large caps because banks in small caps actually represent like 25% of the Russell 2000. So small caps underperformed large caps, and that is something that could continue as some of this choppiness occurs in this area specifically, my opinion in the market right now is that I expect volatility to continue specifically in equities, although we’ve seen this has had upside volatility impact in the fixed income markets. 

So if this continues to show up as risk and as economic deterioration, bond yields will come down and prices will go up. That could be bullish on our volatility side for fixed income but this is really going to just wreak havoc on certain areas of the stocks because you’re going to have news one day where it goes one way and the other day it’s bad and then it’s good again and the fed’s stepping in. So that’s super bullish because obviously when the Fed steps in the stocks go to the moon, zero interest, but that’s not always the case either. So I just can see it going both ways, which is why I say volatility. What any thoughts on where the market’s headed here? 

Josh Robb: 

Oh, I have no thoughts on that. It’s unknown, but what you saw over the weekend, and even for instance, Monday morning when I came to the office, I think the Dow was down 400 before the market opened. Opened flat, was up and then closed slightly down for the Dow. So it’s all over the place because people are digesting this. Now, the answer is there’s volatility, and until this plays out completely, I think there’s going to be some volatility. But again, the long term is, like we’ve always said, Austin, is you stick to a plan, you have an idea of what you’re doing and why you’re doing it. Volatility is going to be here and this just is one more reason for people to react. 

Austin Wilson: 

So that brings me to my last discussion, Josh, and this is where you come in. 

Josh Robb: 

Yes. 

[26:07] – Key Takeaways: What You Should Know as An Investor/Consumer 

 Austin Wilson: 

As my go-to guru of financial advice, what do you need to know, what do our listeners need to know as a consumer and as an investor right now? 

Josh Robb: 

So when it comes to banks, there’s FDIC insurance and you are protected for bank failure up to $250,000 per person. And there’s different caveats to that when it comes to trust accounts and all these fun stuff, joint accounts, all those things. But $250,000 per person is what you need to know. Anything above that is not guaranteed or insured. And so… 

Austin Wilson: 

At one location or at one institution. 

Josh Robb: 

Per bank. And so keep that in mind if you have a lot of cash, spreading it out is beneficial from that security standpoint. When it comes to investing, there is SIPC insurance, which is Security Investor Protection Corporation, and it’s a similar type of insurance. This is actually a non-profit corporation created by Congress to do the same thing. So it protects brokerage accounts, investment accounts similar to this in that if there’s a failure in that custodian or institution, then you have up to $500,000 insured, 250 of that is for cash or money market, not for losses in investments. It’s not insurance against, “Oh, the market went down, I lost money.” No, it’s if there’s a failure for that. 

Same idea though. Custodians can actually have additional insurance up to higher amounts. But in general, there’s a protection there as well. The key though is understanding what you are doing with your money and where it is at. Look at the bank. Now, people have a hard time understanding the that those balance sheets you look at it and say, “Well, $100 billion in bonds?” That seems pretty secure. Understanding that, but being careful, making sure you trust where you’re putting your money is very important. 

But in the end, having a plan is huge. Being liquid with assets to cover what your short-term needs are, and then taking longer-term risks with your assets that you have time to let it grow. In other words, making sure you can get to the cash that you need for your short-term cash flow, your normal monthly needs, emergency funds like that and then stepping out on the risk for the things that you have a little bit longer duration for. 

If you do that, then these type of issues really aren’t as big of a concern as long as you’re invested in high quality things long-term where you grow your money historically. If you have concerns or questions or want to know how that impact is, reach out to us. The email is hello@theinvesteddads.com or theinvesteddads.com website and we’d be happy to talk with you about that. 

Austin Wilson: 

Thanks again for being here. We’d love it if you’d share this episode. Maybe someone is asking, “What’s going on with Silicon Valley Bank?” Well, here’s a one stop shop where they can hopefully get a little bit of closure on what’s going on there. And again, as a reminder, we’d love it if you subscribe. New episodes out each and every week, and you get them first and leave us a review on Apple Podcast and Spotify. So until next Thursday, have a great week. 

Josh Robb: 

Talk to you there. 

Austin Wilson: 

Bye. 

Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to the Invested Dads dot com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode. 

Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. 

There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.