This week’s theme on the Retirement Quick Tips Podcast is: Why Banks Are Going Bust & What To Do About It

Yesterday I talked about the most important way…

• Brokered CDs - spread out coverage among financial institutions within one account. For businesses, they can do basically the same thing with what’s known as Certificate of Deposit Account Registry Service

• Treasuries - backed by the full faith and credit of the US government without the much smaller FDIC insurance limits

• Money Markets - variety of institutions to spread out the risk even though they’re not FDIC backed

• Stash Your Cash with the Biggest Banks - Too Big To Fail & more diversified (remember SVB was a niche bank catering to venture capital and tech startups, so they were doomed as soon as the perfect storm hit of deposits and new capital flows drying up because their customers VC businesses were also drying up, and interest rates started rising which created huge losses for them as they sold bonds to cover withdrawals from the bank)

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: Why Banks Are Going Bust & What To Do About It

Today, I’m talking about how to protect yourself against bank failures.

The most obvious way to protect yourself against bank failures, is to make sure your cash & savings account holdings at the bank are fully covered by FDIC insurance.

The problem is that if you have a lot of cash that exceeds the FDIC coverage limits, you could leave yourself exposed, and if your cash far exceeds FDIC coverage limits, it could be too cumbersome to spread your money around enough to maintain full coverage amounts with different banks, so people just don’t do that, especially with the 2008 financial crisis getting dimmer and dimmer. Up until early March, most people and almost certainly the depositors at SVB, many with millions of dollars sitting exposed and unprotected by FDIC, never considered that they might lose their deposits. But how quickly things change, so let’s break down the FDIC coverage limits so you can protect yourself 

The standard FDIC insurance amount is $250,000 per depositor, per insured bank. So if you’re married and have a Joint bank account, your assets there are insured up to $500,000. Anything under that amount is fully insured. Any cash or savings with that institution above that amount are uninsured. 

There are some other nuanced rules for other types of accounts and entities, like trust accounts, but applying the general rule of $250,000 in coverage per depositor per bank is going to be applicable in most cases. 

So if you have a lot of cash or savings with your bank in excess of this amount, the prudent thing to do is to spread your deposits among enough banks to always maintain the coverage limits. 

[Note - you don’t have to do this with all of your investments, keeping $250k at all financial institutions - doesn’t apply to investments, since those assets aren’t on the balance sheet of the financial institution. SIPC protections & additional insurance which will most often be fully insured and protected, and risk of investment itself]. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: Why Banks Are Going Bust & What To Do About It

There was a good opinion piece by the editorial board at the WSJ last week after the bailout of Silicon Valley Bank was announced:

“For the second time in 15 years (excluding the brief Covid-caused panic), regulators will have encouraged a credit mania, and then failed to foresee the financial panic when the easy money stopped. Democrats and the press corps may try to pin the problem on bankers or the Trump Administration, but these are political diversions.

You can’t run the most reckless monetary and fiscal experiment in history without the bill eventually coming due. The first invoice arrived as inflation. The second has come as a financial panic, with economic damage that may not end with Silicon Valley Bank”

It certainly is frustrating to see that the risks for Silicon Valley Bank were in plain sight but regulators didn’t do anything about it. 

Thankfully in the short-term, I don’t think this will look like 2008, and the result of all of this will not be the total financial collapse and contagion spreading, but just more costly and ineffective regulations on banks that in the end will only lead to higher costs and fees for the average American, while doing little to nothing to prevent the next bank run. 

So while it’s frustrating to know that this could have been prevented by better management at the bank and better oversight by regulators, the point I want to make in today’s podcast is that it’s scary and you might even be angry when something like this happens, but it doesn’t mean it's time to panic. 

NO doubt in the aftermath of the Silicon Valley Bank failure, people did panic. I know of one person who went down to their bank and pulled out several thousand dollars to put in their safe at home. This is an emotional and bad decision. The money is much safer at the bank then in your safe at home. 

Many investors also took this as a sign of just the beginning of a collapse and sold. Thankfully, it doesnt seem to have happened en masse since the stock market didn’t budge that much in the day following the regulators stepping in and taking over. You’ll hear this episode about a week after I record so it remains to be seen how much investors panic and sell.

The worst thing you could do…

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: Why Banks Are Going Bust & What To Do About It

Today I’m talking about the problem with bank bailouts and moral hazard, and how stoping a contagion in the banking system today leads to more problems in the future because of moral hazard. 

On Sunday, March 12th, regulators announced that they would give depositors of Silicon Valley Bank access to their funds, not just those that were covered by FDIC insurance. This is important because roughly 97% of all deposits at SVB were not covered by the FDIC insurance limit, and the millions of dollars that some depositors had a SVB would have been reduced to $250,000 overnight. 

Since regulators stepped in to back all deposits, the next question is:Are all uninsured deposits now covered by government guarantees?

No. The regulators said they were making an exception for SVB and Signature (which also collapsed at the same time as SVB). 

If you recall from September 2008, it was the government’s refusal to bailout Lehman Bros after their collapse, that is widely accepted as the tipping point of the Global Financial Crisis. But 6 months prior to that, Bear Stearns collapsed and was bailed out. 

So its likely that Lehman, AIG, and other troubled banks with garbage balance sheets assumed that they could be bailed out too. And if they made that assumption, they would have been slow to act. It’s possible that Lehman could have found a buyer as things started to head south to prevent a bankruptcy. And they certainly would have taken on less risk with their CredDefSwaps and other risky investments if they didn’t have the backstop of the government. 

This played out the same way for SVB. By the time SVB tried raising capital to keep things afloat, it was too little too late, and it was too far gone. 

When the regulators step in it’s controversial, because it creates what is known as a “moral hazard”. It’s like the parents who will always bail their kids out no matter what. When the kids know this, they feel untouchable and certain kids will take advantage of the situation by doing crazy and stupid stuff and feel invincible all the while. Well as you and I both know, that behavior, if it continues will catch up to you someday with often catastrophic consequences.  

That’s moral hazard, and the same is true for banks if the government will always backstop them in a crisis. They and their customers have no incentive to manage their risk or act prudently, because Daddy Government will always step in and save the day. That poor incentive structure and the risky behavior encourages is scary when the US Financial system is put to the test as a result. 

Banks and regulators should have learned more from the 2008 financial crisis, but SVB is proving that’s not always the case. Especially in the banking world, where it seems like the management made poor decisions and mistakes. These mistakes were in plain view of regulators months ago when they started racking up the losses, but nothing was done about it, and here we are today. 

So when you once again have regulators stepping in to backstop all deposits, unfortunately no one learns from their mistakes and we can expect more of the same in the future. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: Why Banks Are Going Bust & What To Do About It

Today I’m talking about what happened with Silicon Valley Bank.

Customer base: SVB catered to venture capital, tech startups, and even crypto, all of which have pretty much dried up in the last year, so when customers started taking their money out, there was no fresh capital coming in to offset withdrawals, they were forced to start selling assets to raise the funds to satisfy customer withdrawals. And this is the problem. Silicon Valley Bank had tied up a lot of their assets in treasuries that didn’t mature for several years. After the Fed started aggressively raising rates last year, those treasury bonds on their books started to rack up massive losses - $17 billion by the end of 2022. Then, once they have to sell those treasuries to pay out customer withdrawal requests, the losses are realized, & now they forced to sell their treasury bonds at huge losses, and because of these massive losses, SVB tried to raise additional capital from investors, which they were unable to do.

Then in the 2nd week of March, bank customers started to get really spooked, and more customers because to withdraw their money, creating a death spiral continued to unravel rapidly until collapse and the FDIC had to step in to shut the bank down on Friday, March 10.

https://www.wsj.com/articles/silicon-valley-bank-svb-financial-what-is-happening-299e9b65?mod=markets_major_pos2 

Even though SVB is in a niche market that made it especially exposed to this type of situation, the contagion spread to other banks with stocks of several other regional banks tanking in the aftermath. 

As of this recording, it’s uncertain how far the contagion will spread, but it seems unlikely to spread far at this point, because on Sunday, March 12th, “Regulators including the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department said the depositors of SVB, which failed last week, would have full access to their money starting Monday. They also said they would protect all the depositors of another bank, Signature Bank, that was forced to close on Sunday.” - https://www.wsj.com/articles/were-banks-just-bailed-out-by-the-government-6b0a582f?mod=markets_major_pos2 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

Welcome to a new week here on the Retirement Quick Tips podcast! I’m your host Ashley Micciche, co-owner of True North Retirement Advisors, an independent financial advisory practice managing $340 million in client assets. I’m a Chartered Retirement Planning Counselor and I’m using my 15 years of experience as a financial advisor to help you gain clarity and make a plan for the retirement you envision.

On this podcast, I cover everything from investing, to retirement spending, to taxes in retirement in just a few minutes each day, so if you’re 5-10 years on either side of retirement, and looking for some daily doses of retirement planning wisdom, stick around this week as I talk about Why Banks Are Going Bust & What To Do About It

Now, I was actually going to talk about a completely different topic this week, but then Silicon Valley Bank failed as I was getting ready to record, I started getting client emails, and shivers down my spine as I recalled the experience of Bear Stearns and Lehman Bros going bust at the onset of the global financial crisis, and I thought I better switch gears to help you make sense of what’s happening with Silicon Valley Bank, one of the largest bank failures in US history. 

So this week, I’ll talk about what happened with Silicon Valley Bank, the implications for investors and the banking system as a whole, and most importantly what you can do to protect yourself. 

That’s it for today. Thanks for listening! Come on back tomorrow…where I’ll break down what led to the collapse at SVB. 

My name is Ashley Micciche...and this is the Retirement Quick Tips podcast.

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

It’s Sunday, which means...it’s recap time here on the Retirement Quick Tips Podcast

This week the theme was: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

In case you missed any episodes, here’s what we discussed this week…

• Bargains In Housing…They’re Coming

• The Opportunity To Downsize

• Buying A Second Home?

• Consider Intra-Family Loans

• What To Do About Your HELOC

The most important takeaway from this week is…

Tomorrow, I’m starting a brand new theme: The Downside of Being Wealthy

Many people pursue more wealth, without really thinking about the downside of having more and growing your net worth. But it’s important to be grounded in reality when it comes to building wealth - because there are pros and cons to having more. So next week, we’ll explore the downside of being wealthy to keep you grounded in reality when it comes to how having more will actually benefit you. 

Thank you so much for listening this week! If you’re enjoying the podcast, chances are someone else you know who is getting close to retirement could also benefit from checking it out, so please share the show with a friend, a neighbor, your sister, or your boss. Just go to your favorite podcasting app, hit the share icon, then text or email the show link to someone you know who is eyeing retirement. 

Thanks for sharing the love and spreading the word. I hope you have a blessed Sunday. My name is Ashley Micciche, this is the Retirement Quick Tips Podcast.

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

Today, I’m talking about how to handle a HELOC or a home equity line of credit in this current higher interest rate environment. 

Tapping into your home equity in years past made a lot more sense if you needed to make a large purchase - like a new car, or a home remodel, and you didn’t already have the cash on hand to do it. Since interest rates were so low for so long, as long as you had equity in your house, it made a lot more sense than selling other assets to fund large purchases. 

But since rates have shot up, the math for tapping into a HELOC or any sort of cash out refinance has changed significantly. Rates are often higher than current mortgage rates - currently averaging around 8%, and many of these loans are variable, so if interest rates head higher, your HELOC rate and your payments will climb along with it. 

The point here is that since the math doesn;t work any more with HELOC rates being so much higher, it changes the decision making process. For many, unless it’s necessary, the smart thing to do would just be to hold off on the big purchase. It’s anyone’s guess how long rates will stay higher and it’s possible that we won’t see rates drop back down to the previous 3% range for years. 

Higher rates may also justify selling other assets to pay for a large purchase, or saving up more cash and investing 

If I was planning to make a large purchase in the next 3-5 years, I would save up as much as I could every month, and invest it in something conservative - like a portfolio that has mostly bonds or CDs. I can earn over 4.5% on a money market fund right now, and if rates start to drop, I can migrate that savings to lock in the rate buy purchasing CDs that match my timeline for whatever purchase I’m saving for. 

With rates on HELOCs high, a little patience and a lot of added savings will help keep interest costs lower, and provide more flexibility as well. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

Today, I’m talking about a common goal that many parents have when it comes to their adult children - helping them buy their first house. My parents and my in laws both helped us with the down payment on our first home, and looking back, it was an incredible gift that I am very thankful for. Because of the help from our parents, we were able to put a meaningful amount of cash down and keep our mortgage payments very affordable. Then, 5 years later when we sold that house and moved to our current home, we had plenty of equity to transfer over and without that initial down payment, we wouldn’t have been able to buy our current home, that now houses our family of 6 + our dog.

One attractive option for parents looking to help their children buy their first home is an intra-family loan. Basically, the bank of mom or dad or both loans money to a child borrower for the purchase of a house. You have to follow a certain set of guidelines for the loan to qualify and not be deemed a gift instead, but if you do it right, it helps both you and your child in several ways:

• The interest costs paid by the child stay in the family (to be used by the parents)

• Origination and other transaction fees may be avoided; 

• And the biggest benefit in today’s market: the borrowing cost for the child is typically much lower than interest rates from the bank; the rates for these loans are set by AFR or applicable federal rates, which are currently 3.74% as of early March 2023. Compare that to the national average on a 30yr fixed mortgage right now, that recently topped 7% again.

Now obviously the risk of loaning to your child is real those payments could stop if they lose their job or something catastrophic happens, so the risk is higher than owning a diversified bond portfolio, but the interest rate paid to you as a lender is still better than what the parents can earn from a bond portfolio. 

Obviously, you need to have the assets to make an intra family loan pencil out, but if you do have the assets and your child is looking to buy a house, it’s a great strategy to consider with even more appeal when rates are higher. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance

This week’s theme on the Retirement Quick Tips Podcast is: How Pre-Retiree Homeowners Can Benefit From Higher Interest Rates.

Today, I’m talking about the opportunity to purchase a 2nd home - whether that’s a rental, a snowbird spot, or a vacation home, a decline in housing prices means an even greater decline for popular vacation or 2nd home destinations. During the global financial crisis in 2008, vacation home sales dropped 30% and prices came down 23% in just one year from 2007 to 2008. 

Obviously we’re not there yet, but you can take steps today if you’re serious about it:

• Start shopping & decide on places you would consider buying and understand what’s happening in the market (corporate buyers are already exiting)

• Story about central OR, Florida, Arizona, South Carolina - seriously considering a move

• Save as much as possible and invest it in 1 year CD or Treasuries or money market where the money will be safe but grow while you wait

• Crunch the numbers and figure out what you can afford, so you’ll know when the values come down to a more reasonable level and when you’re ready to buy…you don’t need to wait until the bottom (we bought our first house in Jan 2009 when prices came down, but didn’t bottom for another couple of years). Fixed rate mortgages are high, but ARMs are cheaper if you can deal with the potential uncertainty that your interest rate will increase

• Be patient - this could take years to fully materialize - market cycles can be long and the last downturn in housing took about 10 years to get back to peak housing levels, so there is no rush and you have time to be prudent.

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.    

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance