High-Yield Savings, FDIC Insurance and the Role of Cash

Greetings!

The theme around most recent meetings has been savings accounts.

Interest rates on savings

Interest rates have ticked up quite a bit and money is being left on the table if it’s sitting in your checking account, a large brick and mortar bank, or small town bank at a negligible interest rate of 0.2%

Right now, a high yield savings account is paying anywhere from 3-4.5%. I would confirm you are earning that from your savings.

Quick note on Silicon Valley Bank

My philosophy in the past has been not to comment on current events until I send out this newsletter. I was almost tempted to send something out early in regard to the collapse of SVB Bank. I’m glad I didn’t.

SVB mismanaged things and the Fed bailed them out. That’s pretty much all you need to know.

But I did want to use this story for a quick lesson on FDIC coverage.

FDIC

You have coverage up to $250k for a single account. If it’s a joint account it should be $500k – confirm with your bank.

Therefore, a married couple could have: - Single account in spouse 1 name $250k - Single account in spouse 2 name $250k - Joint account $500k - Total FDIC up to $1mil

I cannot think of too many reasons why one would have this much in the bank, outside of owning a business and covering payroll.

Where is the safest place to put money right now?

With savings and CDs paying 3-5%, one could certainly argue that is a safe bet right now.

Keep in mind that when you factor in inflation of 8%, you are net negative on your cash.

The REAL risk is that your money will expire before you do, not a temporary decline in the great companies we invest in.

Lastly:

(1) “The stock market” is perfectly capable of declining by half at any moment for any reason or combination of crises. Any client of ours who has been alive since New Year’s Day 1973 has lived through three such episodes. (Anybody who was alive on Presidents Day 2000 has lived through two of those three.)

(2) Mainstream companies bundled together, remain by far the safest investment in the world – providing the investor defines “safest” as the highest real, inflation adjusted long-term total return over time.

Most investors aren’t remotely capable of holding both those ideas in their head simultaneously without active encouragement.

It is why you must make a distinction between investing in the stock market vs investing in the greatest and most resilient companies in the world. A rational business, failing to deliver on its promises, will either stop what it’s doing, change course, innovate, or be replaced by a business that is performing better.

But we tend to think more so about stock prices and how volatile the market can be with its ups and downs. Versus thinking about how fortunate we are investing alongside great companies while participating in the growth and upside of hard workers, innovators, and the brightest minds in the world. That is a powerful and beautiful thing.

Thank you so much for reading and being a client of ours.