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What Does the Silicon Valley Bank Collapse Mean for Investors?

Americans have suddenly witnessed three very large bank failures in only a few days’ time. The first was the collapse last week of Silvergate, also known as “the Crypto bank.” Soon after, we read the news of both Silicon Valley Bank (SVB) and Signature Bank collapsing. These are some of the largest bank failures in U.S. history. What is going on here? Should we be worried? Is another financial crisis on the horizon? The short answer is no.

Why We Shouldn’t Press the Panic Button

Let’s start with the bottom line before we get into the details. This is something to keep an eye on, but it’s not the start of the next financial crisis. Unlike in the great financial crisis of 2008, the government is getting ahead of the problem rather than trying to clean up afterward. That is a very positive sign. We can certainly expect market turbulence—in fact, we’re seeing it already—but the systemic effects will be limited, and we’re not set for another major crisis.

Instead, the takeaway so far is that regulators and the federal government are on the case and are willing and able to support the financial system. Sunday night, the U.S. Treasury announced that depositors would be fully protected in the interest of maintaining systemic confidence and that funds were being made available to support banks under stress. Again, this quick action is what differentiates this situation from that of 2008.

What Will Happen Now?

Many people have written good descriptions of how and why these banks collapsed, and I won’t try to replicate those. To investors, the “why” is interesting, but what we really need to know is what it all means for the future.

The Federal Reserve’s (Fed’s) interest rate hikes are indeed affecting the financial system. The fact that the collapses have principally been in the tech and crypto spaces suggests that these sectors are even more at risk than the economy as a whole. While other banks will likely move to replace SVB, they will not be as focused or as dedicated to the sector, and things will slow down in the tech sector going forward. In short, one of the primary enablers of the tech boom is now gone.

Do These Failures Indicate a System-Wide Problem?

The answer to this question is good news. To set the stage, let’s look at the three factors that caused the financial system to lock up in 2008:

  • There was little transparency around asset values, which caused a lack of liquidity for those assets.
  • Banks didn’t have sufficient capital to weather a crisis.
  • There wasn’t enough available credit in the early stages of the crisis to support the banks until liquidity came back.

We’re in a very different place now on all three.

In terms of the liquidity issue, U.S. banks generally now hold very liquid assets, dominated by U.S. Treasury notes. Those values are clear, and there is a large market for them. Banks can raise cash, if necessary, simply by selling or borrowing against those assets.

Regarding sufficient capital, U.S. banks are, by and large, very well capitalized. They have the money to weather storms and, as noted, they can access those funds. These circumstances are both very different from those of 2008.

The third cause, lack of available credit, is where we must be careful. Banks have seen those Treasury notes decline in value significantly as rates rose, and there are questions in some cases about whether the value of the bank capital still covers the liabilities. This is what drove the collapse of SVB. What the Treasury did Sunday, however, was to solve this problem by providing a way for banks to borrow against long-term assets, like Treasuries, based on the par value, not the current market value. That largely eliminates the insolvency problem and will provide the credit that was missing in 2008. It will not eliminate the entire problem, though, as banks may still need to rebuild their capital bases. But it will allow the banks time to recover, which will be key to rebalancing the system.

Explained differently, the system is more transparent and has a more solid foundation compared to 2008. The government has also identified the remaining problems and put programs in place to deal with them. From a depositor’s perspective, the government’s decision to stand behind all deposits also reduces the risk of further bank runs. With a stronger system in place, and the government being aggressively proactive, there looks to be little systemic risk right now. We won’t see another great financial crisis.

What Comes Next?

What we can expect to see is continued turbulence. The primary purpose of diversification is to mitigate risk. By spreading your investment across different asset classes, industries, or maturities, you are less likely to experience market shocks that impact every single one of your investments the same. Our approach is to maintain a disciplined commitment to well-diversified portfolios. It may be a bumpy ride, but one that will eventually end. This story is not over yet, and we don’t fully know how it will play out. We do know, however, that we will make it through.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index.
Steve LaFrance, CFP®, AIF®, ChSNC®, MBA | Blakely Financial
Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
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January Market Update 2023

Join Steve LaFrance, CFP® with Blakely Financial as he updates you on the last month in 3 minutes.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
Investing as a Couple

Love & Finances: How to Invest as a Couple

In a perfect world, both halves of a couple share the same investment goals and agree on the best way to try to reach them. It doesn’t always work that way, though; disagreements about money are often a source of friction between couples. You may be risk averse, while your spouse may be comfortable investing more aggressively — or vice versa. How can you bridge that gap?

First, define your goals

Making good investment decisions is difficult if you don’t know what you’re investing for. Make sure you’re on the same page — or at least reading from the same book — when it comes to financial goal setting. Knowing where you’re headed is the first step toward developing a road map for dealing jointly with investments.

In some cases, you may have the same goals, but put a different priority on each one or have two different time frames for a specific goal. For example, your spouse may want to retire as soon as possible, while you’re anxious to accept a new job that means advancement in your career, even if it means staying put or moving later. Coming to a general agreement on what your priorities are and roughly when you hope to achieve each one can greatly simplify the process of deciding how to invest.

Make sure the game plan is clear

Making sure both spouses know how and (equally important) why their money is invested in a certain way can help minimize marital blowback if investment choices don’t work out as anticipated. Second-guessing rarely improves any relationship. Making sure that both partners understand from the beginning why an investment was chosen, as well as its risks and potential rewards, may help moderate the impulse to say “I told you so” later.

Investing doesn’t have to be either/or. A diversified portfolio should have a place for both conservative and more aggressive investments. Though diversification and asset allocation can’t guarantee a profit or protect against a loss, they are ways to manage the type and level of risk you face — including the risks involved in bickering with your spouse.

It takes two

Aside from attempting to minimize marital strife, there’s another good reason to make sure both spouses understand how their money is invested and why. If only one person makes all the decisions — even if that person is the more experienced investor — what if something were to happen to that individual? The other spouse might have to make decisions at a very vulnerable time — decisions that could have long-term consequences.

If you’re the less experienced investor, take the responsibility for making sure you have at least a basic understanding of how your resources are invested. If you’re suddenly the one responsible for all decisions, you should at least know enough to protect yourself from fraud and/or work effectively with a financial professional to help manage your money.

If you’re the more conservative investor …

  • If you’re unfamiliar with a specific investment, research it. Though past performance is no guarantee of future returns, understanding how an investment typically has behaved in the past or how it compares to other investment possibilities could give you a better perspective on why your spouse is interested in it.
  • Consider whether there are investments that are less aggressive than what your spouse is proposing but that still push you out of your comfort zone and might represent a compromise position. For example, if you don’t want to invest a large amount in a single stock, a mutual fund or an exchange-traded fund (ETF) that invests in that sector might be a way to compromise. (Before investing in a mutual fund or ETF, carefully consider its investment objective, risks, charges, and expenses, which can be found in the prospectus available from the fund. Read it carefully before investing.) Or you could compromise by making a small investment, watching for an agreed-upon length of time to see how it performs, and then deciding whether to invest more.
  • Finally, there may be ways to offset, reduce, or manage the risk involved in a particular investment. Some investments benefit from circumstances that hurt others; for example, a natural disaster that cuts the profits of insurance companies could be beneficial for companies that are hired to rebuild in that area. Many investors try to hedge the risks involved in one investment by purchasing another with very different risks. However, remember that even though hedging could potentially reduce your overall level of risk, doing so probably would also reduce any return you might earn if the other investment is profitable.

If you’re the more aggressive investor …

  • Listen respectfully to your spouse’s concerns. Additional information may increase a spouse’s comfort level, but you won’t know what’s needed if you automatically dismiss any objections. If you don’t have the patience to educate your spouse, a third party who isn’t emotionally involved might be better at explaining your point of view.
  • Concealing the potential pitfalls of an investment about which you’re enthusiastic could make future joint decisions more difficult if your credibility suffers because of a loss. As with most marital issues, transparency and trust are key.
  • A spouse who’s more cautious than you are may help you remember to assess the risks involved or keep trading costs down by reducing the churn in your portfolio.
  • Remember that you can make changes in your portfolio gradually. You might be able to help your spouse get more comfortable with taking on additional risk by spreading the investment out over time rather than investing a lump sum. And if you’re an impulsive investor, try not to act until you can consult your partner — or be prepared to face the consequences.

What if you still can’t agree?

You could consider investing a certain percentage of your combined resources aggressively, an equal percentage conservatively, and a third percentage in a middle-ground choice. This would give each partner equal input and control of the decision-making process, even if one has a larger balance in his or her individual account.

Another approach is to use separate asset allocations to balance competing interests. If both spouses have workplace retirement plans, the risk taker could invest the largest portion of his or her plan in an aggressive choice and put a smaller portion in an option with which a spouse is comfortable. The conservative partner could invest the bulk of his or her money in a relatively conservative choice and put a smaller piece in a more aggressive selection on which both spouses agree.

Or you could divide responsibility for specific goals. For example, the more conservative half could be responsible for the money that’s being saved for a house down payment in five years. The other partner could take charge of longer-term goals that may benefit from taking greater risk in pursuit of potentially higher returns. You also could consider setting a predetermined limit on how much the risk taker can put into riskier investments.

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

Planning for Major Spending Events

Planning for Major Spending Events

Your financial plan likely involves standard savings goals, such as retirement or education costs, but do you have savings prepared for expensive life events? The beginning of the year is a great time to take inventory of any upcoming life events and begin mapping out a savings plan. Your long-term plans should include funds set aside to celebrate some of life’s best moments! 

Weddings

If you plan on getting married in the future, or plan to fund your child’s wedding, saving should start early. The venue, food, and music can be incredibly expensive- and prices are only continuing to increase. Weddings should be a joyous celebration- not a time to stress about debt. Identifying wants and needs long before the event, and prioritizing spending on which aspects of a wedding are most important, is essential to avoid overspending.  If you prepare yourself early enough, you can throw a wedding without the constraints of a limited budget, and simply enjoy yourself and the special day. 

Graduations

Graduating from high school or college is a momentous occasion in anyone’s life. If you have a child or loved one in school, think about how they may want to celebrate their graduation! Many parents give their children a large gift, a check, or a vacation to celebrate their accomplishments. If you are planning a party as well, familiarize yourself with the expenses involved and communicate expressly with your child about their expectations. The most important part of graduating is celebrating your loved one’s accomplishment, money should not hold you back from showing your pride! 

Moving

Congratulations- you have purchased a new house! However, in the midst of the mayhem of the home-buying process, you may have forgotten about moving expenses. Depending on the distance of your move, it can be incredibly expensive to rent a truck, hire professional movers, or ship your belongings. Make sure you have set aside adequate funds for all aspects of purchasing a new home- not just funds for the home itself! 

Birthdays

Some birthdays hold more significance than others. If you or a family member are anticipating a major birthday in the coming years, start setting funds aside now to celebrate them! For instance, many people see a 50th birthday as a significant milestone and throw a more elaborate party than in other years. If you are interested in planning a trip, throwing a party, or even just purchasing an expensive gift for a loved one, make sure you have considered the funding in advance. 

At the end of the day, our wealth should be used to enjoy some of the best parts of life! Don’t let a lack of planning prevent you from celebrating yourself and your loved ones on important occasions. If you are interested in building a new financial plan that includes these types of funds, contact Blakely Financial to speak with one of our trusted advisors.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.
The Importance of Establishing a Budget in the New Year

Establishing Your 2023 Financial Goals

As we enter 2023, there is constant talk about New Year’s resolutions and how to make this year better than the last. If you’re looking to start this year on the right foot, your finances are a great place to start. Below are tips to get started and a few ideas to keep you on track. 

1. Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them. At Blakely Financial, we often refer to your needs, wants, and wishes. This method can work for retirement as well as monthly budgeting.

2. Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you’re not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

3. Evaluate your budget

Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don’t worry! All it will take is some determination and a little self-discipline, and you’ll eventually get it right.

4. Monitor your budget

You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep track of every penny that you spend. In fact, the less record-keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., a leaky roof, failed car transmission).

Tips to help you stay on track

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress
  • Stay disciplined: Try to make budgeting a part of your daily routine
  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)
  • Find a budgeting system that fits your needs (e.g., budgeting software)
  • Establish your needs, wants, and wishes.
  • Build rewards into your budget (e.g., eat out every other week)
  • Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will continue to increase

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.