Financial news over the past few months hasn’t been exactly positive. Ongoing inflation and high-interest rates tend to be bad news for investors, so there’s a good chance your retirement portfolio is looking a little rough. And the collapse of Silicon Valley Bank (SVB) in March has caused even more skittishness as we remember what happened in 2008 when banks collapsed.

So what does the SVB collapse really mean for you? 

We know how scary it is to see dire predictions about investments tanking and banks failing. It’s especially stressful if you’re retired or close to retirement — you might need to access your investments soon, so what happens when these big financial “earthquakes” occur? 

The Basics of the SVB Collapse

You don’t have to understand all the ins and outs of the SVB collapse to know what it means for you and your investments. But essentially, SVB failed because it followed risky practices even when the government warned of potential problems.

The Federal Reserve had been monitoring Silicon Valley Bank for over a year before its collapse because of the bank’s problematic risk identification and mitigation practices. Unfortunately, The Fed’s warnings weren’t enough to stop SVB from following these questionable practices, and the bank failed after investors made a “run” to withdraw their funds. 

As more investors (including venture capital firms) panicked and encouraged people to withdraw their money, SVB stock tanked and regulators halted trading. The state of California shut down the bank, and the Federal Deposit Insurance Corporation (FDIC) stepped in to handle insured deposits. 

How a Bank Collapse Affects Investors

While the SVB collapse caused issues for a few other small banks, most experts think that the domino effect will stop there. There isn’t a serious concern that large banks will collapse like they did in 2008. 

What if you had money invested at SVB?

This is where safeguards like FDIC coverage come into play. If you have cash at an FDIC-insured bank, your money isn’t necessarily at that bank, but that’s OK. It’s insured by the FDIC. When SVB started to collapse, the FDIC stepped in and took control so they could make sure insured depositors could access their funds. 

Uninsured depositors can also receive some protection under the FDIC. When a bank collapses, the FDIC sells its assets and then pays dividends to depositors whose investments weren’t insured.

Essentially, if your bank accounts are with a reputable bank, they’re insured by the FDIC. And your investments are in different accounts from your cash. So you don’t have to worry about pulling your retirement distribution from your investment account right away. You can access the FDIC-insured cash in your bank accounts and wait until the market stabilizes. And remember, over the long term, investments generally increase in value, despite temporary dips in the market.

Creating a Retirement Plan That Can Withstand the Unexpected

The SVB collapse was an unpleasant reminder that nothing in the market is certain. Silicon Valley Bank was the institution of choice for many successful venture capital firms until it collapsed, and there is always some amount of risk when it comes to investing. 

But when you work with an experienced financial planner, you don’t have to worry that market hiccups will destroy your retirement. A financial planner can help you build a diversified portfolio that’s designed to weather economic storms. The goal is to have a balance of cash, stocks, bonds, and other assets, like money-market funds. Investment diversification puts your financial eggs in different baskets, so you have other options when one type of investment drops in value.

If you’re not sure whether your investments are diversified or whether you’re on track to meet your retirement goals, we are here to help.

At Guiding Wealth, our team will help you figure out exactly what your retirement goals are — goals that are based on your values, not some cookie-cutter standard. Then, we’ll help you build a plan to reach those goals through solid investments designed to withstand market uncertainty. To get started, schedule a consultation online or call us at 214-810-3835.