Tag Archives: Cahaba Wealth Management

Silicon Valley Bank Collapse

3/2023

By Brian O’Neill CFP®

Friday (3/10/2023) saw the precipitous collapse of Silicon Valley Bank (SVB), making it the second largest US bank failure, only topped by that of Washington Mutual at the peak of the 2008/2009 financial crisis. On Sunday (3/12/2023), New York-based Signature Bank followed suit, marking the third largest US bank failure in history. This obviously led to questions about the health of the US financial industry, and worries about echoes from that turbulent time. With nerves understandably on edge, we thought it would be a good time to share some calming thoughts.

On Sunday evening, the Treasury Department, Federal Reserve, and FDIC issued a joint statement laying out decisive actions that will be taken to strengthen confidence in the banking system. In short, all depositors at these banks will be made whole, even those who maintained accounts larger than the FDIC insurable limit of $250,000. While these emergency measures were necessary for depositor protection and for companies to make payroll this week, shareholders and unsecured debt holders of these banks will not be bailed out.

The Fall of SVB

Primarily, the failure of SVB was specific to both the clientele of the bank, and what can only be termed loose risk controls that management put in place. SVB served the start-up community and venture capital backed companies, mostly in the San Francisco region. The bank’s deposits ballooned during the pandemic, as new money from Initial Public Offerings and Special Purpose Acquisition Vehicles soared. The bank then chose to invest the proceeds of these significant deposits into long-dated US Treasuries, rather than choosing to make riskier loans. While that feels safe, the reality of long-dated bonds is that when interest rates rose in 2022, the value of these bonds fell, and in some cases, fell dramatically. 

Even in the backdrop of falling bond prices, the bank remained solvent, as most of their customers were required to continue to bank with them. This meant deposits remained…until last week. As the economy has softened, many of these startup companies began withdrawing cash to sustain operations – easy money was no longer available, and they had to use their funds in the bank. This initially forced SVB to sell some of these “safe” securities they had purchased, and in their 8-K filing on March 8th, they disclosed they did this at a loss of $1.8 billion. With this 8-K filing, an old fashioned bank run started, and within 3 days, the bank was insolvent, and taken over by the FDIC.

Longer Term Implications

Should we worry about other banks? Our belief is that this is fairly focused on SVB and Signature, and possibly other smaller banks intertwined with the startup and crypto communities. Most banks do not have deposits that are significantly over these FDIC insured limits, as most banks work with individual clients like you and me. Additionally, bank regulators placed much more significant controls on capital and lending requirements. While it appears regulators missed the specific issues at SVB, the overall banking system in America is much healthier than it was prior to 2008/2009, and we do not believe these issues exist on most bank balance sheets.

We will need to monitor the fallout of these failures, so this story is not completely told, but we see no reason to hit any panic buttons due to our financial system. 

As always, we welcome any questions.

Brian O’Neill, CFP®, is president and a financial advisor in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Getting Ready for the New Year

12/2022

As we begin wrapping up the 2022 tax year and planning for 2023, we wanted to make note of the announcements the IRS recently made for the 2023 tax year. In a year that was highlighted by soaring inflation putting pressure on taxpayers and their families, the IRS made unprecedented changes to the retirement plan limits and raised the income thresholds for each tax bracket. The government hopes to stimulate economic activity by allowing Americans to keep more of their earnings and increase their retirement contributions. Here are the important changes to know going in to the New Year:

Retirement Plan Limits

2023 Limits2022 Limits
401(k)/403(b)/457(b) Elective Deferrals$22,500$20,500
Traditional and Roth IRA$6,500$6,000
Catch-Up Contribution (plans other than SIMPLE plans)$7,500$6,500
SIMPLE Plan Employee Deferrals$15,500$14,000
SIMPLE Plan Catch-Up Contributions$3,500$3,000
Plan Maximum Annual Contribution – Defined Contribution Plans$66,000$61,000
Maximum Annual Benefit – Defined Benefit Plans$265,000$245,000
Compensation Limit under Section 401(a)(17)$330,000$305,000
(Source: www.irs.gov)

Health Savings and Health Flexible Spending Accounts

2023 Limits2022 Limits
 HSA – Annual Contribution Limits
   Self-Only Coverage$3,850$3,650
   Family Coverage$7,750$7,300
   Catch-up Contributions (age 55 or older)$1,000$1,000
FSA – Annual Contribution Limits
   Self-Only Coverage$3,850$3,650
   Family Coverage$7,750$7,300
(Source: www.irs.gov)

Standard Deductions

2023 Limits2022 Limits
Single$13,850$12,950
Married Filing Jointly$27,700$25,900
Head of Household$20,800$19,400
(Source: www.irs.gov

Other Changes for 2023

  • In addition the changes mentioned above, 2023 will bring revisions to the tax brackets, exemptions and credits, and limitations. 1
  • The Alternative Minimum Tax (AMT) exemption will increase to $81,300. AMT is in place to ensure higher income earners pay at least a minimum amount of tax. 1
  • Also in 2023, the Social Security Administration announced an 8.7% cost-of-living adjustment (COLA) Social Security retirement and disability beneficiaries. 2
  • The first $17,000 of gifts to any person are excluded from tax, up from $16,000. The exclusion is increased to $175,000 from $164,000 for gifts to spouses who are not citizens of the United States. 1
  • The Earned Income Tax Credit (EITC) increased the maximum credit amount to $7,430. This is a refundable tax credit for low and moderate-income workers. 1

If you’re curious how the new changes will affect your bottom line, we are here to talk about your plan. As always, we appreciate the opportunity to be of service.

We wish you a joyful and fulfilling New Year!

1 Source: www.irs.gov

2 Source: https://www.ssa.gov/cola/

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Courage

12/2022

By William Jackson, CFP®

When discussing successful wealth management, most will typically include investment management/asset allocation, cash management, risk management, and other predictable factors. What is typically omitted or minimized relates to behavioral psychology.  How one reacts to adversity is arguably more impactful to long-term success than all the other factors combined.  Specifically, having the courage to stay the course during uncertain times is often the greatest determinant of long term success.

Holistic financial planning permits a good advisor to focus every conversation on the client’s long term plan.  This approach enables the advisor to provide a service that truly helps clients lead their lives with greater financial clarity.  The challenge is that we work in an industry that is intentionally opaque.  Having a plan and staying the course is not standard operating procedure for the majority of industry participants.  These firms have a strategy of offering reactionary products to clients that attempt to solve the problem of the day.  They bombard our inboxes with updates to make us aware of solution “de jour”.  Frequently, these products are of a complex nature, and render the buyer feeling underqualified to understand but worried about missing out.  These firms are well aware that when clients are overwhelmed with “over their head” concepts, they might feel hesitant to ask questions. This ultimately results in many clients agreeing to purchase products that are often unnecessary or even inappropriate for their personal plans.  A good advisor who is “fee-only” and focused on financial planning serves as an agent of clarity with the mission of helping clients understand why any products chosen for them are beneficial and necessary.  This might sound simplistic, but the rewards are real.

The foundation of Cahaba Wealth was built on knowing our clients and their financial goals.  We provide comprehensive financial planning in a way that leads clients to have greater understanding of their financial lives.  The financial plan dictates the investment plan. The investment plan and process are intentionally designed to encourage a discipline that has shown to be beneficial to long term wealth creation.  In asking you to trust in the process and have the courage to take a road less traveled, we are demonstrating our commitment to your success. We are aware of the magnitude of this request and are grateful for the faith shown.

Eleanor Roosevelt wrote, “You gain strength, courage and confidence by every experience in which you really stop to look fear in the face. You are able to say to yourself, ‘I have lived through this horror. I can take the next thing that comes along.’ You must do the thing you think you cannot do.”

We are proud to call you clients and thankful for the opportunity to serve.