$350k in Money Market Funds

[CRLLS]

One of life's little mysteries for me is why sophisticated investors even care about FDIC insurance.

First, bank failures are incredibly rare. Average is something like seven per year out of 5000, less than 0.2%.

Second, deposits in excess of FDIC limits do not go away; their owners are secured creditors and IIRC the habit of the regulators is to make them good.

But most importantly, bank risks pale in the shadow of the risks investors take every day by buying stocks (no guarantees, ever) and corporate bonds (default rates many times the bank failure rate). Sure, people are concerned about these kinds of risks, but not to the extent they seem to be concerned about having FDIC insurance.

Sure, if it's free take it and maneuver to maximize the amount, but in the scale of investment risks bank failures seem negligible to me.

Thread drift, I suppose. Sorry.

OP was concerned about the FDIC limits of MM funds after cashing out funds in an IRA. I was just mentioning that it shouldn't be a concern if Vanguard does the same as Fidelity.

According to Bankrate.com there have been "only" 511 bank failures since 2009. I agree that bank failures where customers actually lost any of their money may be few and far between if any. Saying that doesn't help the one who may be concerned about it.

 

[Another Reader]

OP was concerned about the FDIC limits of MM funds after cashing out funds in an IRA. I was just mentioning that it shouldn't be a concern if Vanguard does the same as Fidelity.

According to Bankrate.com there have been "only" 511 bank failures since 2009. I agree that bank failures where customers actually lost any of their money may be few and far between if any. Saying that doesn't help the one who may be concerned about it.

I remember the takeovers in 2008-2009. I was plenty worried back then. Worried enough to withdraw cash from one bank and deposit it in the bank of a contractor that I needed to pay. Going to stick to FDIC insured banks and treasury-only money market accounts at Fido.

 

[24601NoMore]

FDIC or NCUA insurance can be increased beyond $250K by adding beneficiaries to a POD account. It's $250K per beneficiary. So, add two and insurance increases to $500K ($250K per named beneficiary - at that point your coverage is negated by the benes).

Or, add your spouse and that person also gets $250K. The two of you (if you're married) can easily get $500K per institution that way.

That said, VMFXX and other Money Market funds don't have FDIC OR NCUA insurance.

You can google FDIC or NCUA insurance calculators and play around with the options..

It's pretty easy to insure > $1M or more if you try hard in a traditional account that's eligible for FDIC or NCUA insurance..

 

[pb4uski]

One of life's little mysteries for me is why sophisticated investors even care about FDIC insurance.

First, bank failures are incredibly rare. Average is something like seven per year out of 5000, less than 0.2%.

Second, deposits in excess of FDIC limits do not go away; their owners are secured creditors and IIRC the habit of the regulators is to make them good.

But most importantly, bank risks pale in the shadow of the risks investors take every day by buying stocks (no guarantees, ever) and corporate bonds (default rates many times the bank failure rate). Sure, people are concerned about these kinds of risks, but not to the extent they seem to be concerned about having FDIC insurance.

Sure, if it's free take it and maneuver to maximize the amount, but in the scale of investment risks bank failures seem negligible to me.

Thread drift, I suppose. Sorry.

So if I have an NCUA insured 3% CD that allows additional deposits then I should feel fine loading it up beyond the $250k NCUA limit? I'll admit that it has crossed my mind.

 

[OldShooter]

So if I have an NCUA insured 3% CD that allows additional deposits then I should feel fine loading it up beyond the $250k NCUA limit? I'll admit that it has crossed my mind.

Well, I can't say how you should feel about it, but it wouldn't bother me a bit.

(Edit: To be clear, I have not thought much about credit unions and never used one, but assuming the failure rates and pathologies are similar to those of larger commercial banks, I would be comfortable.)

The popular behavioral psychology books like I enjoy reading are rife with examples where we humans make huge errors in evaluating the probability of negative events. We fear terrorism but do not fear driving in a car. We buy accidental death and dismemberment insurance, insuring against fairly low probably but horrific and dramatic events, instead of buying broad coverage life insurance. We fear commercial airplane crashes more than highway driving, which is far more dangerous. I just read an estimate that about 2100 lives were lost because 9/11 scared people out of commercial airplanes and onto the highways. I think we comfortably take market risks that are far, far larger than the minuscule risk I see with deposits in large commercial banks. However, YPMV (Your perception may vary.)

 

[pb4uski]

FDIC or NCUA insurance can be increased beyond $250K by adding beneficiaries to a POD account. It's $250K per beneficiary. So, add two and insurance increases to $500K ($250K per named beneficiary - at that point your coverage is negated by the benes)...

But not all accounts:
"While some self-directed retirement Accounts, like IRAs, permit the owner to name one or more beneficiaries, the existence of beneficiaries does not increase the available insurance coverage."

 

[calmloki]

So if I have an NCUA insured 3% CD that allows additional deposits then I should feel fine loading it up beyond the $250k NCUA limit? I'll admit that it has crossed my mind.

I've four beneficiaries at GTE - not that we have that much there - but haven't settled whether NCUA goes to a million or stops at $750. Seems like I get information supporting both theories.

 

[24601NoMore]

Here's a calculator from the NCUA that allows you to explore different scenarios with POD, single v. joint owners, beneficiaries, etc.

https://www.mycreditunion.gov/insurance-estimator

 

[calmloki]

Here's a calculator from the NCUA that allows you to explore different scenarios with POD, single v. joint owners, beneficiaries, etc.

https://www.mycreditunion.gov/insurance-estimator

Thanks. There are wrinkles though, for instance, per

https://www.membersadvantagecu.com/Resources/NCUA-Share-Insurance

"The funds in a Revocable Trust Account, also known as a "payable on death" account (POD), is paid to named beneficiaries in the event of the owner's death. While living, the owner has use of the funds and can revoke the trust (remove or change beneficiaries). If the beneficiaries of a Revocable Trust Account are a spouse, child, grandchild, parent, or sibling of the owner, the funds in the account are separately insured to $250,000 per beneficiary, (in addition to any insurance on valid individual and joint accounts). To qualify for coverage under NCUA regulations, there are several conditions that must be met:

Beneficiaries must be a qualifying family member...."

We have four beneficiaries - but with a spouse, a sister, a SIL and a friend as beneficiaries it looks like we are only insured to $500k.

 

[Sunset]

I had a CD about 30 years ago, the bank failed. The gov't paid me the principle and interest about 90 days later.
I was really surprised to get the interest.
Only time I felt my money was in danger from a bank.

OP - You may have "won the game" right now at 3% , but the future can have surprises like high inflation and low interest rates. Cutting your buying power by many percentages every year.

I will keep money in stocks all my life, by the end it might be just 10% but can't really see going to zero stocks.

 

[bada bing]

OP - You may have "won the game" right now at 3% , but the future can have surprises like high inflation and low interest rates. Cutting your buying power by many percentages every year.

I will keep money in stocks all my life, by the end it might be just 10% but can't really see going to zero stocks.

+1
I would spend 30 minutes googling "the efficient frontier". Although it might not seem so at first thought, having all cash, no stocks is not the safest "won the game" position. There are risks beyond the nominal dollar balance in your accounts to consider. A minimal 15%-20% allocation to stocks is actually quite a bit "safer" than all cash.

 

[wallygator69]

+1
I would spend 30 minutes googling "the efficient frontier". Although it might not seem so at first thought, having all cash, no stocks is not the safest "won the game" position. There are risks beyond the nominal dollar balance in your accounts to consider. A minimal 15%-20% allocation to stocks is actually quite a bit "safer" than all cash.

OP Here


I've read Bernstien, swedroe and a bunch of others. Unfortunately I also follow perma bear Hussman. I think he is brilliant and makes a lot of sense..



I retired at 42 am now 57 and NW is about 30% more...I can see SS and retirement now and just don't like what the market fundamentals look like now.



I will get back into Wellesley and a Target retirement fund or two eventually...


Will look at MYGA for a portion.


Thanks to everyone for the input.


Wally

 

[pb4uski]

I've four beneficiaries at GTE - not that we have that much there - but haven't settled whether NCUA goes to a million or stops at $750. Seems like I get information supporting both theories.

My 3% add-on CD is in an IRA, so adding a beneficiary doesn't increase the amount insured as I understand it.

 

[jazz4cash]

I had a CD about 30 years ago, the bank failed. The gov't paid me the principle and interest about 90 days later.
I was really surprised to get the interest.
Only time I felt my money was in danger from a bank.

Very valuable info ! Always wondered about the timing of FDIC restitution. 90 days could be ruinous if you had everything in one bank. It’s not surprising, though. I suspect it could take much longer under extenuating circumstances (exceed FDIC/NCUA limit, alternative coverage-SIPC, SGA, etc). Need to diversify duly noted.

 

[DCdave]

OP Here


I've read Bernstien, swedroe and a bunch of others. Unfortunately I also follow perma bear Hussman. I think he is brilliant and makes a lot of sense..

I retired at 42 am now 57 and NW is about 30% more...I can see SS and retirement now and just don't like what the market fundamentals look like now.


Wally

You should do what makes you sleep at night but in regards to following Hussman….
On Morningstar I plugged in Hussmans Strategic Growth (ill-named) Fund vs Vanguards Total Stock Market Index (VTSAX) over the past 10 years.
Investing 100k in Hussmans Fund ten years ago would have resulted in a current balance of $53,210 vs $462,600 with the total stock market! Just staggering underperformance.

 

[indiajust]

Put it in a robofund until you put together a plan. then bite off the plan in thirds. perhaps fourths given the size.

 

[Oakster]

Probably that depends on your definition of "safe." If a guaranteed loss in buying power is "safe" then there are a lot of options. TIPS maybe the best. If you recognize that volatility is not risk, though, and given your time horizon, a total market fund is probably the safest.

IOW:

Agreed. Or good index funds