Banks have failed. Rich men became publicly agitated and demanded protection. Regulators stepped in to try to stem the panic. The markets wobbled anyway.
And what exactly should we, everyday players in the economy, do now?
It’s not a rhetorical question. Too many people fail to act immediately in the face of an apparent threat. change banks. buy gold Sell everything (or at least something).
However, if you accepted inaction during this turbulent moment, you may be right. Ask yourself these questions: What has actually changed about the world in the past week? And how have your own financial goals changed?
The answer to this second question is probably “not at all”. The answer to the first is that little has changed, at least so far. But none of them is a reason for most people to reconsider their goals — or take drastic action to pursue them in the days to come.
The moneyed set got scared
Some of the depositors who encouraged others to pull their money out of Silicon Valley Bank were veteran venture capitalists. Signature Bank also had many corporate clients, particularly in industries like real estate, where experienced builders are intimately familiar with economic cycles.
That didn’t stop depositors from running for the hills. “As much love and desire as we have for SVB, fear came first,” David Selinger, the chief executive officer of security firm Deep Sentinel and a longtime client of Silicon Valley Bank, told my colleague Maureen Farrell.
The rescuers came for depositors
If the venture capitalists and entrepreneurs who take risks for a living could get scared so easily, why shouldn’t the rest of us be scared to death?
Regulators foresaw this question last weekend and decided to relieve depositors at the two failing banks — not just within the $250,000 limit that the Federal Deposit Insurance Corporation normally covers, but for every last dollar.
There is no guarantee they would do this again. On Thursday, Treasury Secretary Janet L. Yellen told the Senate Treasury Committee that going forward there would be no coverage for uninsured deposits unless leaving those customers behind would create unacceptable risks to the banking system. She specifically mentioned the possibility of a “serious risk of infection”.
Even if you don’t have a lot of money in your bank account, your exposure here may not be zero. Maybe for years your employer left well over $250,000 in payroll payments in a single bank account without giving it much thought.
Hopefully employers have now recognized this risk. It’s worth asking her. It’s also possible that regulation – or at least analysis by interested outsiders and rating agencies – will become tighter, leading many banks to be more cautious.
Not much new, but it’s new to you
If you have a B before your age, you may not have many memories of 2008 when the banking system was brought to its knees. This financial crisis – and countless disasters before it – is a good reminder that our systems are resilient.
Bankers and business people make terrible decisions all the time. markets tremble. A bank with “Silicon Valley” in its name has never failed before, but there’s nothing unusual about rolling waves of economic uncertainty that last for weeks or longer.
“At some point you just realize that it all just seems to be on the sidelines,” says Tori Dunlap, 28, author of Financial Feminist.
Your goals probably haven’t changed
So the world around you makes no promises. But regardless of your age, income, or wealth, you probably have a list of financial goals.
Has anything that happened in the past week caused you to change those goals? Amid natural anxiety about how to understand the rapidly unfolding events, you may not have stopped questioning yourself.
Chances are the answer is no. And if the answer is no, it’s okay to be a spectator for now.
You probably don’t have to walk anywhere
For individuals, the best bank stress test is a personal one. Have more than $250,000 at a single institution? The vast majority of people don’t.
If you do, as Ms. Yellen acknowledged, the FDIC may not cover your theoretical losses. It’s easy enough to solve this by opening accounts at other banks, leaving you with $250,000 worth of coverage at each institution. (You might have more than that with a brokerage firm that stores your retirement savings. They also have comprehensive protections in place, and you can read about them in the article I wrote with Tara Siegel Bernard this week, “Is My Money Safe?” )
When banks close, there is often panic and the kind of queues you saw in photos of Silicon Valley Bank branches last week. However, what generally happens for depositors whose balances at a failing bank are below the FDIC limit is this: another entity steps in, and ATM deposits and withdrawals continue more or less normally.
Still worried? Set up a backup checking account with another financial institution. Make sure the debit card stays active. Park some money there if you have some left over. Link it to any outside savings or broker accounts you have so you can quickly deposit funds when you need them. And watch out for monthly inactivity or low balance fees.
You probably shouldn’t be sprinting out of stocks, either
As worrying as the financial world may seem at the moment, the US stock market as a whole is up this week. Sure, financial stocks have been bouncing, but if you’ve got most of your stock investments in plain vanilla index funds that own thousands of different company stocks — and you should — your net worth might be higher than it was a week ago.
Still, it’s natural to wonder if the prospect of more bank failures is the sign to sell everything you’ve been waiting for. Wouldn’t you feel better if all your money was in cash and not in floating stocks?
It might be for a bit. But consider these numbers generated this week by Nejat Seyhun, a professor at the Ross School of Business at the University of Michigan. Imagine holding a huge basket of almost every US stock and leaving it alone from 1975 to 2022. The return on this portfolio would have been 1,426 percent.
Now imagine selling everything here and there when things were feeling uncertain. If you missed just the top 10 stock-performing days out of those 12,106 trading days, your return would drop to 602 percent. That’s a potential price to pay for trying to time the stock market, and those lost returns could mean working years longer than you want to.
The advice to stay put is cold comfort to recently retired or aspiring retirees who don’t want to weather a stock market crash near the end of the day. If that’s you, the good news is that many banks pay upwards of 3 percent interest on savings accounts. You can park basic expense money there or somewhere similarly safe for a few years if you’re feeling nervous. With those savings, stock losses would have some time to recover in the coming months.
Living with the least-worst system
If this all feels like a light scolding from those already comfortable, I get it. Personal finances are way too complicated and it’s not your fault. Once you figure it out, an unsatisfactory conclusion goes something like this: For most people, achieving a reasonable level of comfort requires constant risk.
So what can be most helpful at times like these, and pretty much always, is to discuss the low hum of uncertainty out loud with someone you trust and who can make you feel a little bit better.
“This headline about the fall in the Dow Jones is not to reassure you,” Ms Dunlap said. “Find people who are there to give you facts in an unbiased way, without the scaremongering that makes things worse.”
