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The FinancialMD Show - Ep 023 - How Things Are Going In Your Finances



Summary:

· What Happened To The Silicon Valley Bank? [0:02:13]

· FDIC: Where Do They Come In? [0:05:33]

· Other News: Stocks Are Holding Steady [0:07:10]

· As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]

· Should You Buy A House? Student Loan Status During These Times [0:11:21]

· Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]

· Download The Financial MD App – It's Free! [0:16:49]



Welcome to the Financial MD Show. This is the only podcast designed specifically for residents and young physicians to help you become educated on financial planning for physicians and avoid many of the common financial mistakes doctors make. Your hosts, Jon and Trevor, explore a different topic with each episode. Jon Solitro is a financial planner and certified financial education instructor. He’s been working with young physicians for the better part of the decade and lectures to graduate medical programs around the country. Dr. Trevor Smith is a board-certified ophthalmologist with a full-time practice and he has learned the ins and outs first-hand what it takes to make smart financial decisions as a young physician. And now here are your hosts, Jon and Trevor.


Welcome to the Financial MD show. Today, your host is me, Jon Solitro. Today, we will be without Dr. Smith. He's a busy guy and I think just the effort to put something out because it has been way too long, we're going to go ahead and get something out. So, welcome to today's episode. Today, we're going to talk about how things are going in the market today, how things are going in your finances, and how things are just going. We need an update; a lot has happened in the world of finances. Some changes in personal finance; some changes in the economy as a whole, but updates are always good. So, let's dive in.


First, we're going to touch on some of the more pressing things in terms of the banking industry right now so if you're listening to this – I don't know what the date is in your time – so, hello future you. Hopefully, things are going better when you're hearing this, but they're not going terribly right now.


What Happened To The Silicon Valley Bank? [0:02:13]


But the most news in the last couple of weeks has been Silicon Valley Bank essentially going belly up. First Republic Bank – same thing – but a little bit different thing happened. So, the gist of it is in terms of Silicon Valley Bank, the regulators came in and essentially bailed them out. The FDIC insurance, which is the Federal Deposit Insurance Corporation, which is sort of a government agency; that's where all of your cash is insured at the banks. Ever since the Great Depression essentially, you've had insurance on cash in the bank, so if the bank had gone out of business and your account balance said zero, you'd get reimbursed up to 250,000 per account type per account holder. So, we won't go super in-depth on that but if you had a joint account, you had a single account then you had an IRA and then you had a bunch of other things at this bank, that's how it would be protected. So, the FDIC came in and did that but there were a lot of other issues with Silicon Valley Bank that weren't necessarily as public but they all contributed to what happened to the bank. The bank was mainly involved with startup companies and venture capital as their clients so they had a lot of cash sitting; they had cash moving in and out at any given point in time; and so that being the case, banks are required to have a certain amount of cash on hand or some sort of assets to stay liquid because what they do with most of your cash – which, if you don't know this, you should – when you put cash at a bank, that bank is able to lend out that cash. They'll show you in your account that they have it and they can get to it but they're in the business of lending out money, and Silicon Valley Bank is no exception. And so they were a little upside down – a lot upside down, let's be honest – in the assets that they had to cover a lot of those liabilities. So when people started pulling money out, a lot of the assets they had to back up that cash was in U.S. government bonds which normally would be fine but in an economy like we have today where interest rates have gone up, they have bought a lot of these bonds a year ago with cash deposits that they had, so the bonds they owned were paying, let's say, 1 percent or 2 percent when interest rates were really low. So then new bonds come out this year paying 4 percent on the two-year – 4.5 percent sometimes – which means the value of all the other bonds out there goes down. So if they had to go sell this on the open market, the old bonds that they had, they wouldn't be able to get what they needed to get or what they thought they had. So, as new bonds are coming out, the value of their old bonds is dropping down, down, down, down so their balance sheet to their books are getting lower and lower and lower and they reach a liquidity ratio that was unacceptable, and it just became this domino effect. People started pulling money out to the point where they couldn't give them their money.


FDIC: Where Do They Come In? [0:05:33]


So FDIC government comes in, and normally, what we all knew was that 250,000 would be insured; anything over that was your SOL. But the government went ahead and you could say they overstepped or they didn't, but they said – yeah, every depositor will be covered; we've got money here somewhere that we've found. But let's face it – this is a podcast so I'm just going to give you my opinion – I think they overstepped. They have essentially effectively raised the FDIC insurance limit because of precedent. So like an illegal case when they say – well, the law may say this but this court ruled on this five years ago – so that's a precedent that says we should get this. So now should this ever happen again, you can go back to the FDIC and say – well, I know you say 250,000 dollars on paper is protected but I lost a million and you covered this guy at Silicon Valley Bank that had a million that he lost – so there you go. So you could say with precedent, they've effectively raised the FDIC limit to who knows what, and I think they overstepped. They just did whatever they wanted to do with money from somewhere and, of course, said it's not going to affect taxpayers but I don't see how it could unless the government has some other source of revenue that they started in the business of – I don't know. So, that's what's going on.


Other News: Stocks Are Holding Steady [0:07:10]


There is other lesser news: stocks are kind of holding steady - typical ups and downs that's been going on for the last year or so. It was about this time when things started to really tank last year, going down in 10, 15, 20 percent depending on what you had and we're starting to see some recovery this year but it's not drastic but that's usually how recoveries go. Markets go down faster; then they go up but they have always come up since the beginning of time at least in terms of the S&P and the Dow Jones and the Nasdaq and those kinds of things. So, we're going to talk a little bit about what you should be doing with that and how it affects you personally because again this isn't a show about the economy, it's not a show about investing per se, but it all comes back to what does this mean to you as a resident, as a young physician, and your personal finances.


As A Resident, What Does This Mean To You And Your Personal Finances? [0:08:05]


So, markets kind of doing okay. The housing market is starting to level a little bit. You're not seeing the bidding wars and the crazy high offers and all that kind of stuff like we used to a few months ago. Last year was nuts; the year before was nuts. We are seeing some numbers with the CAPE Shiller Index with some other housing price indexes that we can see across that are starting to look a lot more normal. Now, the supply certainly isn't there and that's going to be dictating prices as a whole so the supply of houses available – new houses being built, houses on the market – is not what it needs to be to have things come back down to where they need to be and I get asked the question all the time: When will housing prices go back down to where they were? Should I buy a house now? Should I wait until housing prices come down? I don't know. There's really no way to know. All I know is the supply and demand is the same or is not what it means to be to get the prices back down there and the prices may never go back down to where they were. So, we have to be aware of that and just be ready for that, that may be the case, and this may be where prices are going to be. They're going up slower, but we all know that real estate goes up over time. It just depends on how fast or how slow that goes up. There have been cycles where it's gone down, but should you bank on that when it comes to buying a house? I don't know. Rents are slowing down as well. Those rose quickly. They're pretty correlated so you can say, you know, because it gets expensive to buy a house, people decide to rent, so the more people renting so then rent goes up so the more people want to buy a house so it's this vicious cycle – housing and housing – which brings us to interest rates; essentially because housing prices have gone up so much because unemployment is so low; there are so many jobs out there because prices are going up on eggs, groceries, electricity, gas, what have you – all those things necessary to live; that's inflation. We've talked about that before; check out the Didactic Minute videos that we've done to see more information on that. But because of that, the Fed over the last year has been raising interest rates and a lot of people in the housing industry have hoped that the raising of interest rates would curb housing prices, and again, it slowed it a little bit but I can't say that it has curbed it to any great extent.


So, if you're transitioning from residency into attending or fellowship into attending and you want to buy that house, should you wait? I don't know that the housing prices will drop. Should you wait until interest rates go down to get a more affordable mortgage? Maybe, but we don't know when that's going to go down either. If we look back in the 1970s and 1980s, there was a period of 10 years when interest rates were over 10 percent, and right now, they're around 7, 7.5 percent depending if your credit is decent and you get a 30-year mortgage.


Should You Buy A House? Student Loan Status During These Times [0:11:21]


So, here's the one thing that we could do. If you buy a house and rates go down, you can refinance later. Now, the issue becomes the cost of refinancing, the fees when you do that but, you know, if you got a million-dollar house or a 500,000 house becomes a lot more advantageous to refinance and get a lower interest rate. So, interest rates have dropped which makes refinancing student loans also difficult because if you have a 6.5 percent federal student loan which most of you do as you're waiting on Public Service Loan Forgiveness or you're just waiting for payments to start, there's been hardly any refinancing in the last two and a half years since they put a permanent or a universal deferment on federal student loan payments and interest accumulation. But as soon as that starts back up again – I don't know when at this recording of this podcast episode – but whenever they do, that's going to be the time when refinancing starts, but those refinance rates with SoFi and DRB and Laurel Road and Common Bond and Earnest and all these companies are based on that SOFR which is called the something overnight button rate – I don't know – but the Fed's interest rate, the Wall Street prime rate, all those things; what is prime – that's another conversation – but that's what mortgages are based off of and the Fed Funds overnight rate is what the Federal Reserve raises when they raise rates. That's what mortgages are based on and that's what private student loans are based on. So, two years ago, you could refinance all day long at 2 percent, 3 percent, 4 percent which is great when you're refinancing 300,000 dollars that's now at 6.5 percent – that's a no-brainer – especially when there was no cost to do the refinance. So right now, I haven't seen in a couple of years but I have to imagine that student loan refinancing rates are up near 5 or 6 percent which makes it, you know, again, really no point in refinancing, but still a case-by-case basis of whether that makes sense. If you're going to be eligible for Public Service Loan Forgiveness which we started to see, we were just talking to a physician couple yesterday that was on the verge of getting their student loans forgiven. So I've been seeing several now of our clients getting their Public Service Loan Forgiveness, which is fantastic and a glorious day, and we've been waiting for that for a long time. So, that is a thing that's been happening and it's been real exciting to see. So that's the status of the student loan world, the mortgage world, housing prices, stock markets, banking – that pretty much covers it, would you say?


Interest Rates Keep Rising – A Good Time To Put Your Money In A High-Yield Savings Account [0:14:25]


Another thing just to keep in mind, though, interest rates are rising which we've said affects student loans, affects mortgages, but it also affects your credit cards. It affects your purse. It affects any debt. So if you've got credit card debt, they may not tell you because all they have to do is give you a range. When you first get that credit card, it'll tell you our interest rates will range from 70 percent to 29 percent and so if that falls anywhere in there, they may not tell you when that rate's going up. So if you're holding money on a credit card, maybe a good time to go ahead and pay that off which, on the bright side of interest rates going up, may be a good time to take some of your cash and instead of keeping in a savings account – emergency funds too – move it into a money market account like at Charles Schwab or TD Ameritrade where you could get 4.5 percent per year interest on your cash all day long and it's available today or tomorrow just like cash is. So, be looking into that. You've probably seen advertisements for high-yield savings accounts like American Express or Marcus or Chase and those can be good as well. They're not going to be quite as high as the money markets – more like 3.5, 3.75, maybe 4, depending on where you go – but you're going to want to look into those as well if you've got some cash sitting. So if you've got some cash sitting, one, good for you; two, make sure it's getting the best rate possible. Again, it's March 31st today. You've still got 15 days – 17 days, I guess; tax day is April 17th this year – to get your Roth IRA maxed out for last year; for your backdoor Roth for last year. So, a reminder to do that whether you're at Betterment or Vanguard or Fidelity or wherever you are, get that done. if you've got some cash and you've got over and above your emergency fund, you're three to six months of your fixed expenses like we talked about, then, by all means.


Other news: We had a graduate resident dinner in Royal Oak last Wednesday that went great; went to D'Amato's in downtown Royal Oak and spent a couple of hours just talking about the transition between residency and graduating into an attending and what to do with some of the personal finance decisions that come up. So, if you're in that area, let us know. We do two or three of those a year to try to educate as many graduating residents as we can.


Download The Financial MD App – It's Free! [0:16:49]


What else is news? I'd say that's the bulk of it. So, that's our update. Hope that helped. I would say be sure to do a couple of things. Number one, download the Financial MD app – that's a good place just to get started to help you make smart financial decisions. The personal finance app helps you budget, puts a quick little financial plan together for you. It's free right now, so why not. Get us on TikTok, Instagram, and Facebook. Join the Financial MD community which is doctors only; trading financial thoughts, suggestions, and tips. We post resources all the time there so get on that Facebook group. It's private and for doctors only. So that's a good place to make sure you're getting some good information and ask some questions. And always check out financialmd.com for our blogs and our updates. Subscribe to the YouTube channel here for this podcast and if you're on Apple or Spotify or Amazon or wherever you get podcasts, please leave us a review and give us 5 stars, and just, hey, shoot me a message. Let me know what you like, what you want to hear; any topics in the future. Comment on this video. Please like and subscribe. Be a part of getting the word out to young physicians to avoid doctors making dumb mistakes with their money.


This is John from Financial MD, we'll see you next time.


Thanks for joining us for another Financial MD Show. Be sure to head over to financialmd.com to get more in-depth resources on financial tips for physicians and don’t forget to join the Financial MD community group on Facebook, where physicians at all stages of their careers gather to share tips and get ideas on achieving true financial success. We’ll see you next time.


The Financial MD Show is for informational purposes only and is not an offer to invest. It is not financial, tax, or legal advice. Be sure to seek financial, legal, or tax professionals when making any financial decisions. Before investing, you should make sure that any investment strategy or investment meets your individual investment needs, goals, and objectives. Financial MD makes no claims or guarantees to individual investment performance. All investing involves the risk of loss as well as the potential for gain.



Resources and Links:

· About the FDIC – https://www.fdic.gov/

· What is liquidity ratio? –

· S&P Global Ratings – https://www.spglobal.com/ratings/en/

· Dow Jones – Business & Financial News, Analysis & Insight – https://www.dowjones.com/

· Nasdaq: Stock Market, Data Updates, Reports & News – https://www.nasdaq.com/

· CAPE Shiller Index meaning –

· Public Service Loan Forgiveness (PSLF) –

· SoFi | Refinance Student Loans – https://www.sofi.com/refinance-student-loan/

· Laurel Road | Student Loan Refinancing – https://www.laurelroad.com/

· CommonBond | Student Loan Refinancing and Consolidation –

· Earnest | Low-Interest Loans Designed For You – https://www.earnest.com/

· Secured Overnight Financing Rate (SOFR) Definition and History –

· Charles Schwab | A modern approach to investing & retirement – https://www.schwab.com/

· TD Ameritrade: Online Stock Trading, Investing, Brokerage – https://www.tdameritrade.com/

· What are high-yield savings accounts? –

· Betterment: A better way to invest – https://www.betterment.com/

· Vanguard: Mutual funds, IRAs, ETFs, 401(k) plans, and more –

· Fidelity Investments: Retirement Plans, Investing, Brokerage – https://www.fidelity.com/

· Financial MD Website – https://www.financialmd.co/

· Financial MD YouTube page –

· Financial MD Facebook community – https://www.facebook.com/FinancialMD/

· Financial MD TikTok – https://www.tiktok.com/@financialmd

· Financial MD Instagram – https://www.instagram.com/financial.md/

· Financial MD Twitter – https://twitter.com/financialmd2

· Financial MD LinkedIn –

· Financial MD Apple Podcast –




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