Should You Abandon the Banks?
With all the chaos the current administration is causing, wreaking havoc on the US and its institutions (not to mention its people), you might be wondering about your money.
Valid.
You should be worried. It seems that crashing the market is part of Trump's plan. That’s because doing so gives the ultra-rich the opportunity to pick up stocks, real estate, and other assets at a serious discount. Remember mean old Mr. Potter from “It’s a Wonderful Life” who waited until all the regular folk were panicked from the run on the bank and subsequent market crash, only to swoop in and offer the desperate people pennies on the dollar for their assets?
Yeah. That.
This administration is putting a stain on the reputation of the United States and other countries aren’t going to stand by and let their nations suffer. They will adapt. In fact, they already are. Long-standing allies are making plans with other countries to have their needs met. How long before the dollar is no longer the standard of measure of currency around the world?
I don’t know.
But I can tell you one thing: Other leaders aren’t going to let their nations fall along with the US — as long as they can help it. And those twists, turns, and adjustments could very well affect your personal financial stability.
But What About the FDIC?
The Federal Deposit Insurance Corporation (FDIC) was established in 1933 in response to the many bank failures in the late ‘20s and early ‘30s. The organization insures your deposits up to $250,000 if your bank fails, keeps an eye on banks to ensure they are safe and following the law, and swoops in when a bank fails to protect consumers.
Although the FDIC is an independent entity and receives zero appropriations from Congress, Trump has discussed getting rid of the agency or rolling it into another organization, like the Treasury Department or the Office of the Comptroller of the Currency (OCC). If that happens, the public will likely lose confidence in the banking system and it could trigger a run.
While this might not happen, I think we’ve learned over the past few weeks that many things that shouldn’t happen CAN happen.
Don’t Panic
Of course, you want to safeguard your money, but you’ll never make your best decisions in a panic. Because the FDIC is still in place (and the NCUA for credit unions) we all have time to take measured steps to protect ourselves.
Many people across the interwebs suggest moving your money from traditional banks to credit unions for more security. I mean, okay, credit unions are member owned and not for profit. Those are good things. So, sure, move it. But, if you’re moving it for safety — I don’t think that holds much weight. In my opinion, if banks become compromised by changes to the FDIC, credit unions aren’t far behind.
So, what do you do?
Here are a couple of ideas:
Start withdrawing cash and keep it in a safe in your home. Tell no one.
Invest in appreciating assets like land or precious metals.
A combination of both.
But What About Interest?
Yes, when you withdraw your money from the bank, you won’t gain interest on it. But the truth is, even high-yield savings accounts are only earning 4% — max. I’m not saying to keep your cash out of the bank (or credit union) forever, but it might be a good idea to hold onto it in physical form and sacrifice the interest for a short time until you feel the economy is stable.
To keep your money working for you, think about buying appreciating assets with some of that cash. Diversification is the key to success when it comes to money. So, keeping some cash and buying land, precious metals, or something else that appreciates, is the best solution — in my opinion.
If the dollar loses value, you’ll be glad to have the asset(s).
Your 401k and IRAs
Listen, if you cash out your retirement accounts, you’re locking in those losses/gains. Not only that, but you’re triggering a tax event AND you’ll pay a penalty if you’re under 59 1/2 — typically 10%. Roth IRAs are the exception. That’s your post-tax money and you can withdraw it at any time without penalty. However, again, you’ll lock in those losses/gains when you sell.
I can’t tell you what to do with your retirement accounts, but I can tell you that the stock market has historically gone up over time. Here’s the DOW over the last 100 years.
Yes, there are dips and you’ll see that the bottom fell out in the early ‘30s. But you also see that it recovers and grows.
In my opinion, the smart thing to do with investments is to diversify them. I know, that word again. But it really is key. Spread your risk across several types of assets and sectors to minimize the impact of an unstable market.
That said, those who feel better cashing out their retirement can do so. Go in with your eyes wide open about the consequences. Maybe talk to a professional about your specific financial stance before making any rash moves. They will likely tell you to keep your money where it is. However, the choice is up to you. Just remember, you need that money for retirement. Don’t put yourself in a position you’ll regret down the road.