SILICON VALLEY BANK AND YOUR INVESTMENT DOLLARS
What happened?
I’m sure you’ve heard by now that Silicon Valley Bank (SVB)—a subsidiary of publicly traded company, SVB Financial Group (ticker SIVB)—has collapsed due to a good ‘ol fashion bank run. The deeper issues that led to the collapse were the bank’s heavy investment in US Treasury bonds during COVID and rapidly rising interest rates. When interest rates go up, bond principles (think resale price tag) go down, making the old bonds less valuable. When SVB realized the pinch they were in, they tried to raise capital to offset their bad bet on the bonds. This raised eyebrows and caused some depositors to pull their funds. News spread and other depositors did the same. SVB had to start selling their Treasury bonds at a discount, taking huge losses to cover the retreating deposits. The cycle continued and the rest is history.
Could this happen again?
It could and history suggests that it will. But it’s worth noting the circumstances were a bit unique with SVB. They were not your average bank. They served many corporations, hedge funds, and entrepreneurs—in Silicon Valley and globally. Their average client was wealthy and as such, nearly 94% of deposits on the books were in excess of FDIC insurance. If you find yourself exceeding the $250k coverage limit provided by FDIC or NCUA (same limits but for credit unions), you can do some simple things like add beneficiaries to your account to increase your coverage or have more than one type of account (e.g., individual, joint, trust, etc.) which are treated as separate buckets and allow you to “stack” limits up. If you still have uncovered deposits, you might consider diversifying your cash among more than one bank/credit union. You can learn more by visiting these pages on the FDIC and NCUA websites.
Is your money safe at Christian Wealth Management?
While neither Christian Wealth Management nor cfd Investments, Inc. are a bank or subject to the same woes, I thought I would use this incident as a teaching opportunity. Most investors at CWM invest one of two ways: directly with a mutual fund/ETF company (or) through a brokerage account, purchasing the funds of multiple mutual fund/ETF companies. Your investment dollars are not invested in Christian Wealth Management, the mutual fund/ETF company or the brokerage provider. Rather they are invested in the many underlying companies each fund contains. The dollars are held in a fiduciary capacity by a trust company in an account specifically for you. None of the aforementioned parties are authorized to borrow these dollars or use them for any purpose other than the investment(s) you made. For cases of brokerage firm bankruptcy or fraud, Securities Investor Protection Corporation (SIPC) protection is in place at cfd Investments, Inc. providing up to $500k of coverage (up to $250k for cash positions) per unique account owner and unique account type.*
Let’s Talk
Please don’t hesitate to reach out to me if you have any questions about the SVB situation, your account(s) or even something totally unrelated. As expected, the media are doing their best to incite fear and turmoil into the airwaves. Speculations abound about something worse happening, but may we, like the sons of Issachar, rightly discern the times we’re living in and act prudently.
*Market fluctuations are never insured against since they are inherent in stock and bond market investing.
Sources
Advisory Services are offered through Creative Financial Designs, Inc., a Registered Investment Adviser, and Securities are offered through cfd Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600.