Clarification And Fiscal Advice From Javahaaa

I want to thank Javahaaa for taking the time to explain some CD’s, FDIC info and how to get the best rates for your account. I’m not a financial advisor, just a nutty psychic astrologer/writer who gets premonitions about all kinds of things not just the stock market, so I really appreciate Javahaaa taking the time to explain this for my readers. I certainly wouldn’t be qualified to do it!

Javahaaa is a banker so please read the advice so kindly offered:

javahaaa

Denise, since many of your readers seem fearful about their banks and CDs , being in banking I want to set the record straight for them. Every CD you get at a local bank is FDIC insured. You do not have to worry about losing the money if the bank “goes under” or, more likely, is bought out by someone else. Period. This has nothing to do with astrology.

The only people who have to worry the bank’s solidity and losing $ are those who own stocks or bonds of the bank. Even all the CDs and checking/savings deposits at IndyMac were safe. If the bank does “fail” and is taken over by the government, you may have to wait a short while before the $ is returned, but you will not lose it, including the interest accrued to that point. If it is, more likely, bought out by another bank, your $ is at the “new” bank the next day (CDs still subject to same holding period they first were).

Now, whether or not the FDIC has enough funding to meet its obligations, should lots of banks “fail” at once, is a separate story – and _that’s_ what you’re readers ought to ask about, not any individual bank.

Anyone who wants to keep their nest egg in CDs should shop around for the best rate – and the “best rate” is not just the %, but its relation to the maturity of it…. i.e., a 3.5% for 9 months is better than a 4% for 5 years….ask your local bank branch manager (or other experienced banker there) to help you figure out the “best bargain” at their bank, and compare that to other banks (most are more than happy to help you). You can also shop online: bankrate.com is a great site for the public. Then, _put the maturity date on your calendar _, and when the maturity date is coming near, shop around the same way. Usually, if you just let it roll over at the same bank automatically, you will _not_ get as high a rate as you will by shopping around. 

Banks run “promotional” rates to get your money in (often losing money themselves on the transaction, by giving you a higher % than they can get with their own $), and depend on most people being lazy and letting the $ roll automatically to a new, lower % CD once the promotional one comes due.

I hope this helps. Again, stock and bondholders should worry about the long-term solidity of the bank (or any company they invest in), but not people with their savings/CDs there. There are too many other things in day-to-day life to worry about – like spending less than you earn and saving enough (for the near future, and for retirement) to begin with.

Considering the fiscal condition of Medicare (which, at 3X the size of Social Security, is the federal program in the most trouble), and medical cost in general, saving for old age should be priority #1 for most people. They’re going to need a lot more $ than most think.

Clarification on Stock Information by Javahaa

Hi Everyone,

Thanks to Javahaa who clarified a lot of details and issues I can’t really answer. He warns against people who are not sophisticated in the art of investing to try short selling. That was my feeling but I don’t know how complicated it is to learn so, I’m just a freak, what can I say. Please read his very informative post. It answers many questions about shorting and other issues.

Thanks again to Javahaa!

javahaaa

Denise, something you said needs to be clarified, for the benefit of your readers, re ETrade/FDIC/stock holdings, because I know you do not want to give wrong information. I’ll also address, briefly, the ’short’ issue for regular folks. I am a professional investor (and read you out of curiousity and respect for intuitives, though I don’t base my work on it). You are right, that investment assets (stocks, bonds, mutual funds) in brokerage accounts aren’t FDIC insured. This goes for mutual funds held at a mutual-fund company, too. But, your assets are covered by “SIPC” insurance, are kept separate from the investment firms’s own assets, and can’t be seized by the government or creditors if the firm goes under. For example, anyone with an account at Lehman didn’t lose it -their money was separate from the firm. Any reputable brokerage firm, and any you’ve ever heard of is, like ETrade or Schwab or Merrill Lynch, etc., has “SIPC” insurance that covers your brokerage/mutual fund assets up to $500K, and has private insurance (often from Lloyds) to a much higher amount than that. If it’s a firm you’ve never heard of, always verify that a firm has SIPC and additional insurance before giving your money to them. Private “pooled” investments, like hedge funds, usually don’t. SIPC insurance does _not _protect your investments from market fluctuation or investment loss just because the stock/fund has gone down in value. It just protects their value on the day a firm goes under, like Lehman on Sept 16, until they can be transferred to another brokerage firm. That transfer happens ASAP, but it may take a few days, which means you can’t buy or sell anything during that time. SIPC protects the value until the transfer is complete. Eveyone should know, too, that if they opened an account at a bank that has stocks or mutual funds, or purchased an annuity there, it’s a _brokerage_ account, not a bank account. The only thing an FDIC-insured bank account will have is cash or CDs. Also, a brokerage account at ETrade, etc., may actually have cash assets that are FDIC insured – this is different from a “money-market fund”, which is not. Ask the firm. A CD, whether bought at a local bank or in your brokerage account, is always FDIC insured, since banks create these (and sell them on the “open market”, not just your local branch). As for “shorting”: For those who think the market is going down and is not already a sophisticated investor, they should _not_ take a crash course in shorting stocks. Shorting is dangerous – you can lose a lot more than you started with – and should be left to professionals. However, the regular investor can easily purchase an “inverse” fund, which goes the exact opposite of the market. I won’t name any, but there are 2 mutual-fund companies that offer them, and a whole lot of ETFs that do; Google to find (I caution anyone against using leveraged funds when inversing. ..and if you don’t already know an ETF is, or what a leveraged fund is, then you shouldn’t get into these in the first place). If you want to understand these more you can always interview an experienced, local financial advisor for education and help (I am remaining anonymous and will not answer questions on this or any other blog). Never do anything you don’t understand, or don’t understand the downside risk of, even if someone is helping you. Again, while the average investor can easily purchase funds that inverse the market, only sophisticated, experienced investors should actually “short” stocks or get involved in futures or options. Unless, of course, you don’t mind losing lots of money. And, Denise, I would caution you in any advice you allow to be posted on this subject.