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The colossal collapse of Silicon Valley Bank (SVB) has caused legitimate concerns about the banking system and illegitimate concerns about how our lives are going to fall apart. We are facing a variety of financial challenges such as high inflation coupled with low unemployment and an increasing cost of servicing the national debt as well as a variety of geopolitical issues. It’s amazing any of us can get out of bed in the morning (although quiet quitting means several of us don’t).
Franciscan priest Richard Rohr has said, “We are all addicted to stinking thinking.” Stinking thinking is when we let our negative emotions take over our thoughts. Stinking thinking can impact everything, including our finances. Rational explanations don’t help much when we are in this spiral, but there are some actions you can take.
Is SVB the canary in the coal mine and every regional blank will be coughing out black lung crud? Probably not, but take some simple steps without much sacrifice. Government money-market funds invest in government securities. Regardless of what you think of government, government securities are the safest instruments you can own. Today they are paying competitive interest. And Treasury instruments are free from Minnesota state income tax which makes their effective yield still more attractive.
High-yielding savings accounts (typically offered on-line) are liquid and insured by the Federal Government up to $250,000 per owner. Joint accounts are insured up to $500,000. Your current bank may also offer a service where it aggregates your deposits with other banks to provide virtually unlimited protection.
These steps mean that you will get your money back should a bank failure occur. And if you are chasing high-yield certificates of deposits from a bank that fails, you may get your money back but the interest rate could be repriced.
Stinking thinking often involves beating ourselves up because we are afraid we did the wrong thing. Most of the financial choices we make are more good than bad, not right or wrong. Don’t punish yourself for a good decision that turns out poorly. If you have a long-term time horizon, investing in stocks should give you a better return than a savings account. All investments lose value some of the time. But investing is still the right thing, even with a short-term bad result. Stinking thinking is temporal discounting — we value the immediate far more than the future.
There are many things that are out of our control, but you have influence over your own stinking thinking.