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Well, my philosophy is ….

“Well my philosophy is …” I have heard this phrase many times and probably even used it. The truth is this phrase is often followed by an opinion that is based on less-than-complete facts rather than the literal meaning of philosophy. Quite literally, philosophy means love of wisdom. The next time you hear “my philosophy is,” pay close attention to what is spoken next. Apply that basic definition. It might be quite amusing.

I have a friend who completed her degree in Philosophy. I congratulated her on the accomplishment, to which she responded, “Yea, I’m not really sure what I’ll use the degree for.” It was a tongue-in-cheek response, but it did put me into a state of deep contemplation. Perhaps the new grad was already putting her studies to good use.

When it comes to various philosophies of money and finance, it has become more important than ever to apply the “wisdom” part of the definition.

Often we see articles talking about the 5, 10 … best philosophies of finance, only to find they are little more than a slick get-rich-quick advertisement. The recent collapse of a large California bank has raised more questions than answers about the bank’s philosophy. As I am writing this, the details of the collapse are very new. It is yet to be determined whether the injuries suffered were from outside influences, self-inflicted, or a combination. Immediately we have seen a call for additional regulation from Washington. This is, of course, as automatic as saying bless you when somebody sneezes. At first glance, it would appear that there were regulations in place on a Federal and State level to keep this from happening. Were the regulations followed and/or enforced? Only the postmortem analysis will give us better answers.

Even if you were not a customer of or investor in the failed bank, you can learn from this event and remember to adhere to one basic financial philosophy.

That is, of course, to maintain prudent diversification. When discussing diversification, we typically talk about stocks and bonds, Industries and sectors, etc. However, what about the cash component of your portfolio? Large amounts of cash in the bank that exceed FDIC insurance amounts may also be worth examining. How your account is titled can play into just how much coverage you have. Understanding the composition of money markets is important as well.

I bring this point up not to create undue concern but simply to make you aware of it.

There are some simple fixes if you find yourself with too much cash in one place. In most cases, your brokerage account has policies in place to address the cash concentration issue. If you think you may be affected, or you’re just not sure, feel free to call me to discuss.

As Ben Franklin said,

“An ounce of prevention is worth a pound of cure.”

In closing, I’ll leave you with a simple yet fantastic philosophical quote from one of my favorite philosophers:

“Have something to do, have someone to love, have someone to believe in and have something to hope for” – Lou Holz.

April 2023

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