While fraud risk is nothing new, it is worth reminding ourselves that it is out there and a constant risk to all of us. In addition to reminding ourselves, it is important to take the time to educate our kids and grandkids of the risks, help them identify red flags, and develop prudent practices to help avoid being victimized. It is also important to keep our parents in mind too given the rise of elder abuse. Nearly everyone in my family – across generations – has had recent attempts (VERY convincing in one case) of being conned. I have seen more and more articles lately – there is one in today’s Wall Street Journal about check fraud – about the growing frequency and sophistication of fraudsters’ efforts so I thought it would be worth putting this email together to remind us all of ways to protect ourselves.
Given the collapses of Silicon Valley Bank and Signature Bank, the topic of FDIC insurance has come up more lately than it has at any point since the financial crisis of 2008. We do not write this piece out of any sort of fear. We do not have concerns about the strength of the overall banking system. And given the precedent the Fed set in guaranteeing all depositors of the two recently failed banks, there is an argument to be made that any subsequent failures would be met with a similar guarantee. This piece was written for informative purposes for those cash heavy depositors who feel safer relying on the FDIC coverage rather than possible further Fed intervention.
Most are familiar with the $250,000 limit that is commonly cited in the media. However, not all are as familiar with the rules that allow depositors to have well beyond the $250,000 coverage amount at a single bank. How much additional coverage that is available depends on one’s circumstances and account titling. FDIC coverage is not relevant within your investment account; this only pertains to banking accounts.
We thought it would be appropriate to share the chart below to illustrate that we have been in this type of volatile stock market before. The chart shows six bear markets going back to 1980 and how the S&P 500 behaved within the life of each. The circles highlight the various double-digit positive returns during these market downturns. They can be called “false starts”. The truth is, in the moment, it is almost impossible to know if market movement is a false start or indeed the end of the bear market. It is absolutely a losing battle to try to time the market.
Given the volatility in both the stock and bond markets, we wanted to explain what is causing the market dislocations and what we are doing about it. The cause is simple: inflation. Higher prices are rippling through the economy and stock market. In the chart below, you can see changes in prices in different components. The spikes in 2021 and 2022 are quite apparent. Why did we get these spikes? After the height of the pandemic, consumers had not spent money. As the pandemic began to subside, suddenly consumers wanted anything and everything, but could not get many products due to worker shortages and supply chain logistical issues. The result was a huge demand/supply imbalance.