Start-up Finance Lesson — Diversification matters in wake of SVB failure

Diversification matters because it helps to spread risk across different assets or investments, reducing the impact of any single failure or market downturn on the overall portfolio. By diversifying, investors can potentially minimize the impact of unexpected events and improve the likelihood of achieving long-term financial goals.

In the wake of a failure like the SVB collapse, diversifying your funds can help to protect your assets and ensure that your investments are not overly concentrated in any one particular asset or institution. This can reduce the risk of losing a large portion of your portfolio due to the failure of a single investment or financial institution.

Finance 101:

1. Bank Accounts: Have at-least 3 bank accounts (large, regional,vertical )with FDIC insured banks.
2. Proper budgeting: Startups should budget and plan their expenses carefully to ensure they don’t run out of money. This means being realistic about revenue projections and controlling expenses.
3. Focus on cash flow: Startups need to manage their cash flow carefully, as it’s the lifeblood of the business. Monitoring cash flow closely can help to avoid cash flow problems that can lead to insolvency.
4. Maintain a healthy balance sheet: Startups should aim to maintain a healthy balance sheet, with sufficient assets to cover liabilities. This can help to protect the business in times of financial stress and make it more attractive to investors.
5. Diversify your funding sources: Relying on a single funding source can be risky. Startups should explore multiple funding options, such as venture capital, angel investors, or crowdfunding, to spread their risk.
6. Maintain a money market account with Vanguard

Also, to avoid a bank run and safeguard your money, you can take the following steps:

1. Spread your deposits: One of the most effective ways to avoid a bank run is to spread your deposits across multiple banks. This can reduce your exposure to any one particular bank and minimize your risk in the event of a bank failure.
2. Monitor your bank’s health: You should monitor your bank’s financial health and stability regularly. You can do this by reviewing the bank’s financial statements, credit ratings, and other indicators of financial strength. If you have concerns about your bank’s stability, you may want to consider moving your money to a more secure institution.
3. Use FDIC-insured banks: The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per bank. You should make sure that your bank is FDIC-insured to ensure that your deposits are protected in the event of a bank failure.
4. Diversify your holdings: In addition to spreading your deposits across multiple banks, you should also consider diversifying your holdings across different types of assets, such as stocks, bonds, and real estate. This can help to reduce your overall risk and protect your wealth in the event of a financial crisis.
5. Stay informed: It’s important to stay informed about the state of the economy, financial markets, and banking industry. By staying informed, you can make informed decisions about your finances and take steps to protect your money.