The Retirement Rise 3.13.2023

On Bank Failures, Silver Linings, Lessons for Investors, and Putting Love at the Center of Your Financial Plan

“Only when the tide goes out do you learn who has been swimming naked.” ~ Warren Buffett

This Week’s Good Financial News

If you read the papers over the weekend, you may feel like there is only bad financial news at the moment. But there is always good news. At times, you must look harder or reframe the current news. But the good news is still there.

As you may know, Signature Bank, Silicon Valley Bank, and Silvergate Bank all failed over the past week.

At first, this reads like bad news. And indeed, there are challenges to overcome.

But there are always gifts and opportunities under the surface. For example, the excesses of the last few years are being unwound. This is likely good news for markets going forward. It’s hard to accurately assess risk when investors are caught up in a speculative fervor, like with startup stocks, IPOs, and cryptocurrencies in 2020-2021.

Here’s another piece of good news. There are more workers employed right now than in January 2020.

An Investment Note for Retirees

Speaking of bank failures, investors can learn a couple of lessons from Silicon Valley Bank.

1. Diversify Your Investments: Silicon Valley was concentrated in startups and venture capital. Signature Bank and Silvergate were concentrated in cryptocurrency businesses and investors. When those sectors struggled, deposits fled, and the banks became insolvent. Remember, concentration kills. Diversify your portfolio across companies, sectors, asset classes, and companies.

2. Match your Cash Flows to Bond Maturity: Silicon Valley Banks’ primary liability was consumer and company cash deposits. They used this money to buy longer-term treasuries. When treasuries lost value last year, they became insolvent. You can learn from this in your bond portfolio. Your bond maturities should match up with your cash flow needs. For example, if you need cash in 2 years, buy bonds that mature in 1-2 years. Similar for three years or five years.

If Silicon Valley Bank and its ilk had followed the above precepts, they wouldn’t be insolvent. Nevertheless, you can learn from their mistakes.

A Thought on Retire on Purpose

Love can be at the core of your financial plan.

My financial ‘why’ has evolved over the years, but when my wife and I had children, they became the center of my financial purpose. Can you relate?

When it comes to supporting your family and friends, whether it’s putting food on the table, helping with education costs, or providing for an elderly parent, using money for this purpose is always an act of love. And if the welfare of others is a core “why’” for your overall financial plan, you can know that it is an honorable one. - From Money with Purpose

Is love at the center of your plan? Are there individuals who depend on you financially? Is this part of your "why?”

Photo by Sergey Shmidt on Unsplash