With so much going on in the markets we’ve been having more frequent communication with clients. We wanted to take this opportunity to share some of the feedback we’re hearing.
FDIC insurance limits
The Silicon Valley Bank collapse sparked a number of conversations around FDIC insurance limits. We’ve seen a spike in clients transferring uninsured cash balances from banks over to Schwab for the purpose of purchasing short-term treasury bills or CDs. We’ve referred clients to the FDIC’s insurance calculator to make sure they understand how much coverage they have.
A couple of clients who bank at smaller banks expressed some initial concerns about deposits. But the online tool, Bank Find, has been reassuring. The website is a search engine for looking up FDIC insured institutions. You can use it to double check that your financial institution is FDIC insured.
We’ve encouraged clients to reach out to their banks directly and confirm that their deposits are held in actual FDIC insured deposit accounts. Some banks offer special, brokerage-like accounts, which may not be covered under FDIC insurance.
Are high yield savings accounts FDIC insured?
Over the last 6 months, we’ve seen clients move savings from low interest rate accounts to high yield savings accounts from companies like Discover. Some of those clients checked in to make sure these types of accounts are FDIC insured. Discover’s offering is FDIC insured, and most are, but it’s worth double checking. We’ve advised some clients against chasing higher interest rates from non-insured platforms such as peer-to-peer lending or crypto.
We’ve had to remind clients that FDIC insurance applies to deposits like cash balances and CDs but not certain investment products. Stock and bond market losses, for instance, are not covered. On this topic, there’s been some confusion around money markets. FDIC insurance does cover a money market account (which is held at a bank). It does NOT cover a money market fund (typically held in a brokerage account).
Housing market impact
We’re currently assisting a handful of age 30-40 clients in the home buyers market. There’s been a big pick up in activity from our perspective. The volatility in interest rates is prompting these clients to inquire about how quickly rates could shoot back up.
There seems to be some acknowledgement that a 30-year fixed rate in the low 6’s or high 5’s may be the best you can get for the foreseeable future. Our home buying clients are increasingly interested in strategies such as mortgage point buy-downs, or adjustable rate mortgages. In addition, we’re hearing of more attractive financing options available to those shopping for new construction.
We heard from one client in the real estate market who is thinking of changing their plans in light of recent market events. But, by and large, prospective home buyers we speak to are ready to pounce on any decline in rates or home prices.
Using stock compensation
We have a number of clients that work for publicly traded companies and receive equity compensation. Many of these clients have been tapping stock options and RSUs for liquidity. In most cases, clients are using the proceeds from their company stock sales to reinvest in the broader market. But some are using the proceeds to build up savings, either in bank accounts or through the purchase of 1-3 month treasury bills.
We’re regularly pointing out the “win/win” scenario that can play out for those with equity compensation. That involves selling your stock now (locking in the win), and if the stock goes higher later, that’s another win. For what would be causing your company’s stock to do well? Likely strong corporate performance.
Such strong performance is likely to benefit you through higher earnings or an increased value of future equity awards. A big mistake is falling into the “lose/lose” trap. Where you hold your company stock and it declines (a loss). Such a decline could be the result of poor corporate performance. That could lead to job cuts or a cut in future earnings (another loss).
Always think win/win with your equity compensation.
Isn’t this the time to be buying?
“Isn’t this when I’m supposed to be putting more money in the market?”
That question captures much of the sentiment we’re hearing from our higher-earning clients. We’d say this is especially true among clients who feel they have a “recession proof” job, such as those in the medical industry.
But this also varies by age. Clients in their 40s or younger are much more opportunistic about recent market volatility. Those in their 50s and 60s have been more cautious, but not fearful.
We’ve seen our normal flow of IRA contributions ahead of the 2022 contribution deadline (April 18th, 2023). We’ve recommended that clients who are able to, should consider making 2023 IRA contributions now, instead of waiting.
Some concern over assets, not income
An underlying theme across many of our conversations is some concern over investment assets, but not cash flow. Said differently, there’s very little nervousness around layoffs or income deceleration. A couple clients in the tech industry, who work at companies that are experiencing workforce reductions, expressed optimism over their personal outlook within those companies.
However, clients are generally asking, “How much longer do you think the market does nothing?”
To that point, a basket of global stock markets is down about 5% from two years ago. A diversified index of bonds is down 8% over the same time. A balanced portfolio, as measured by Vanguards 60/40 model, is down more than 4%.
Some clients have expressed some exhaustion or agnosticism towards markets recently. The expectation that markets do well in the near-term is very low. But clients are hoping to see signs in the coming months that the market is rewarding them for staying the course.
One client told us they’ve stopped looking at the markets completely, choosing instead to focus on making as much money as possible at their professional job. They’ve found this approach to their investments to be “less stressful.”
Overall, it’s easier to summarize our client feedback based on what it’s not as opposed to what it is: clients aren’t panicking. They’re not panicking over markets, nor are they panicking over their deposits held at banks. But they are asking good questions and doing “check ups” on their various financial buckets. Recent headlines are prompting more awareness of rules and regulations, but not any major changes to existing strategies or financial plans.
Everyone would like to see better market performance and lower volatility. But the absence of those two qualities does not appear to be causing extreme stress or prompting major changes with investments. Such changes generally occurred in the first six months of 2022, when stocks and bonds suffered through their worst congruent stretch in decades.
The analogy we’re expressing to clients is one of a clogged sink.
The market is a clogged sink of negativity that keeps getting more and more negative water dumped into it. Eventually, the sink is either going to overflow, or get drained.
We’re taking some comfort in the market’s resilience: stocks are still up on the year in the face of growing pessimism and negative catalysts.
We take that as a sign that the sink of negativity will drain before it overflows!
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