Motley Fool Money
Schwab Is Not SVB
Tue Jul 18 2023Description
The episode covers Charles Schwab's financial performance, the Activision-Microsoft merger, investment strategies and financial planning, and 529 accounts and retirement planning.
Insights
Charles Schwab's net interest income
Despite a decrease in net interest income, Schwab's assets under management have increased, indicating overall growth.
Activision-Microsoft merger
The deal between Activision and Microsoft is expected to close soon, with potential termination fees if it falls through. Microsoft's deal with Sony may be more for regulatory purposes than business reasons.
Investment strategies
Annuities and ETFs can provide upside potential while limiting downside risk. Diversifying investments across stocks, cash, and bonds is another way to achieve upside potential with downside protection.
Financial planning
Having a pension can add stability to your financial picture. Saving a percentage of your income and considering education expenses through 529 plans are commendable strategies. Prioritizing your own financial security and retirement planning is crucial.
529 accounts and retirement planning
Consider prioritizing your own financial security before contributing to 529 accounts. Opening separate accounts for each child and taking advantage of state tax deductions can be beneficial. Target date funds are recommended for retirement accounts.
Chapters
- Charles Schwab's Financial Performance
- Activision-Microsoft Merger
- Investment Strategies and Financial Planning
- 529 Accounts and Retirement Planning
Charles Schwab's Financial Performance
00:05 - 07:43
- Charles Schwab's net interest income is down 10% year over year, but its actual assets under management are up.
- The rate of deposits leaving Schwab is slowing down, with outflows decreasing.
- Schwab's balance sheet is different from traditional banks as it has fewer loans and more liquid assets.
- To cover the lost deposits, Schwab has taken on higher interest debt by issuing CDs and higher yielding offerings.
- However, Schwab's average yield on interest earning assets has increased from 1.5% to 3.25%, generating enough interest income to make up the difference.
- Schwab's large assets and banking solidity suggest that the short-term implications of taking on more expensive debt will be resolved in the next few years.
Activision-Microsoft Merger
07:16 - 14:27
- The Activision-Microsoft deal deadline passed without closure, but it is expected to close soon.
- Activision could receive a $3 billion termination fee if the deal falls through.
- Microsoft and Activision are working to convince UK regulators to approve their merger.
- Microsoft signed a 10-year deal with Sony to keep Call of Duty on Playstations.
- The gaming industry is incredibly lucrative, with games like Call of Duty generating billions in revenue.
- There is some skepticism about Microsoft's deal with Sony, but it may be more for regulatory purposes than business reasons.
- Activision's recurring revenue component makes it an attractive company for shareholders.
Investment Strategies and Financial Planning
14:06 - 20:31
- The annuities and ETFs that invest in options on broad-based index funds can provide upside potential while limiting downside risk.
- Annuities tend to have high costs and limited liquidity, while ETFs are more affordable and liquid.
- It's worth investigating the performance of these ETFs compared to annuities before making a decision.
- Another way to achieve upside potential with downside protection is by diversifying investments across stocks, cash, and bonds.
- Investing in cash and bonds can provide downside protection while still allowing for portfolio growth.
- Having a pension can add diversification and stability to your financial picture, potentially allowing for more risk in your portfolio.
- The strength and funding status of the company or entity backing the pension should be considered.
- Saving 18% of your income and putting half of every raise towards savings is commendable.
- Consider the growth potential of starting a 529 plan early for your children's education expenses.
- 529 plans offer tax-free growth as long as withdrawals are used for qualified education expenses.
- Unused money in a 529 plan can be transferred to other qualifying relatives or left to grow for future generations.
- Prioritize your own financial security, including retirement planning, before contributing to a 529 plan.
529 Accounts and Retirement Planning
20:02 - 25:50
- Consider prioritizing your own financial security and retirement planning before contributing to 529 accounts for your kids.
- If you have multiple kids of different ages, it may be beneficial to open separate 529 accounts for each child.
- Wisconsin offers a state tax deduction on contributions to 529 accounts, so having multiple accounts may allow for larger deductions.
- Opening a 529 account for yourself and using the funds to pay off student loans can provide some tax advantages, but there is no federal tax deduction for contributing to a 529.
- Target date funds are recommended for retirement accounts because they gradually rebalance and become more conservative as you approach retirement age.
- S&P 500 index funds may seem more stable, but target date funds offer diversification and automatic rebalancing.
- Consider your risk tolerance and time horizon when deciding between target date funds and S&P 500 index funds.