HomeBusinessA question about your money: Has anything really changed this week?

A question about your money: Has anything really changed this week?

Banks failed. Rich men become in public hectic, demanding protection. regulators intervened to try to stop the panic. The markets wobbled anyway.

And now we, the everyday players in the economy, are supposed to do exactly what?

It is not a rhetorical question. Too many people choose to take immediate action in the face of what appears to be a threat. Change bank. buy gold. Sell ​​everything (or something, at least).

However, if you have embraced inaction in this turbulent time, you may be right. Ask yourself these questions: What has really changed in the world in the last week? And how have your own financial goals changed?

The answer to that second question is probably “not at all.” The answer to the first is this: only a few things have changed, at least so far. But none of them is reason for most people to reconsider their goals, or take drastic steps to achieve them in the days ahead.

Some of the depositors who encouraged others to take their money out of Silicon Valley Bank were sophisticated venture capitalists. signature bank he also had many corporate clients, especially in industries like real estate, where experienced building owners are intimately familiar with business cycles.

That didn’t stop depositors from running for the hills. “As much love and desire that we have for SVB, fear came first,” as David Selinger, CEO of security firm Deep Sentinel and a veteran, said. Silicon Valley bank clienthe told my colleague Maureen Farrell.

If venture capitalists and entrepreneurs who take risk for a living can be so easily scared, why shouldn’t the rest of us be scared?

Regulators anticipated this question last weekend and decided to make depositors of the two failing banks whole, not just within the $250,000 limits normally covered by the Federal Deposit Insurance Corporation, but down to the last dollar. .

There is no guarantee that they will do it again. On Thursday, Secretary of the Treasury, Janet L. Yellen, said to the Senate Finance Committee that, in the future, there would be no coverage for uninsured deposits unless leaving those customers short would create unacceptable risks for the banking system. He specifically mentioned the possibility of any “serious risk of contagion.”

Even if you don’t keep a lot of money in your bank account, your exposure here may not be zero. Perhaps your employer has left over $250,000 in payroll money in a single bank account for years without giving it much thought.

Hopefully employers have realized that risk by now. It is worth asking them. It is also possible that regulations, or at least the analysis of rating agencies and interested external persons, it will get tighter and make many banks more careful.

If you have a two in front of your age, you may not have many memories of 2008, when the banking system was on your knees. That financial crisis, and countless calamities before that, it’s a good reminder that our systems are resilient.

Bankers and businessmen make terrible decisions all the time. The markets shudder. A bank with “Silicon Valley” in its name has never gone bankrupt before, but there is absolutely nothing abnormal about waves of economic uncertainty that last for weeks or longer.

“At some point you realize that this whole thing seems to be on the brink of the abyss at all times,” said Tori Dunlap, 28, author of “Financial Feminist.”

So the world around you doesn’t make promises. But regardless of your age, income, or assets, you probably have a list of financial goals.

Did anything that happened last week make you change those goals? Amid the natural preoccupation with how to make sense of rapidly unfolding events, you may not have stopped to examine yourself.

The answer is most likely no. And if the answer is no, it’s okay to be a spectator for now.

For people, the best banking stress test is the personal one. Has more than $250,000 in a single institution? The vast majority of people don’t.

If you do, as Yellen acknowledged, the FDIC may not cover your notional losses. It’s quite simple to solve this by opening accounts at other banks, so that you have $250,000 of coverage at each institution. (You may have more than that at a brokerage firm that stores your retirement savings. There are extensive protections there, too, and you can read about them in the article I wrote this week with Tara Siegel Bernard, “Is my money safe?”)

When banks close, there’s often panic and the kind of lines you saw in the photos of Silicon Valley Bank branches last week. Still, what usually happens for depositors whose balances at a failing bank are below the FDIC limit is this: Some other entity steps in, and ATM deposits and withdrawals continue more or less as usual.

Are you still worried? Set up a backup checking account at another financial institution. Make sure the debit card remains active. Park some money there if you have some to spare. Link it to any third-party brokerage or savings accounts you have, so you can deposit money quickly if needed. And watch out for monthly inactivity or low balance fees.

As ominous as the financial world may seem right now, the US stock market was generally up. this week. Sure, financial stocks have gone up and down, but if you have most of your stock investments in simple index funds that own thousands of shares of different companies: and you should — your net worth may be higher than it was a week ago.

Still, it’s natural to wonder if the prospect of more bank failures is the sell-off signal you’ve been waiting for. Wouldn’t you feel better if all your money was in cash instead of floating stocks?

I could, for a while. But consider these numbers that Nejat Seyhun, a professor at the Ross School of Business at the University of Michigan, generated this week. Imagine you have a giant basket of almost every US stock and leave it alone from 1975 to 2022. The return on that portfolio would have been 1426 percent.

Now, imagine you sold everything here and there when things felt iffy. If you missed just the top 10 days of stock performance out of those 12,106 trading days, your return would drop to 602 percent. That is a potential price of trying to time the stock marketAnd those lost earnings could mean having to work years longer than you wanted.

The advice to stay put is cold comfort to recent retirees or wannabes who don’t want to weather a stock market crash on the cusp of quit day. If that’s you, the good news is that many banks are paying more than 3 percent interest in savings accounts. You could park a few years of money for basic expenses there or in an equally safe place if you’re feeling nervous. Having those savings would give any stock losses in the coming months some time to recover.

If all of the above feels like a mild scolding of what’s already comfortable, I get it. Personal finances are 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 ongoing risk.

So what can be most helpful in times like these and all the time, really, is to talk out loud over the low hum of uncertainty with someone you trust who can make you feel a little better.

“That headline about the falling Dow Jones is not there to calm you down,” Dunlap said. “Find people who are there to give you information without judgment, without the fear that makes everything worse.”

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