Your Financial Security at Schwab

In light of recent financial events, we are posting an open letter from Charles Schwab, Chairman and a director of The Charles Schwab Corporation since its incorporation in 1986.  Additionally, the links provided below allow for further insight on the subject of your personal finances.

Asset Safety with Schwab Institutional

How the Crisis on Wall Street May Affect You

Perspective on the Financial Markets and Your Financial Security at Schwab

The current environment for investors is in many ways unprecedented and clearly unsettling. As a long-time investor myself, and a believer in the American economic system, I know it is very hard to sift through all the information out there and make decisions with confidence and comfort.  It is especially difficult when the news around you creates concern not just about your own financial well-being but also about the safety and stability of the financial institutions you depend on.

I would like to offer some perspective on the current environment and on Schwab’s stability and strength specifically.

Financial Security at Schwab

I want to assure you that Schwab is financially strong, that we are absolutely confident in our continued financial health, and that we take appropriate precautions to give you peace of mind about the security of your money here.

• Our capital structure and liquidity are sound.
• Our internal controls and business standards are designed to keep your assets safe.
• We have strong credit ratings from Moody’s, S&P and Fitch, the major ratings agencies.
• Your brokerage assets are held separately from the company’s assets and are protected by SIPC insurance; Schwab Bank deposits are FDIC insured.
• Schwab Money Funds all continue to meet their objective of maintaining a $1.00 NAV and offering daily liquidity for investment and withdrawal.
• Schwab money market funds will participate in the recently announced U.S. Treasury Temporary Guaranty Program.

Is this a tough environment?  Yes.  Is it a time to be rash? No. Everyone, businesses and individuals, feel the effects of this difficult credit market, no one is immune to it.  But because we’ve managed our business carefully and because of the confidence and trust that you-our clients-have placed in us, our business has performed exceedingly well, despite a market environment that is as difficult as I have ever seen.  I mention this because our track record of strong financial performance has helped support a strong and stable company and will continue to do so in the future.

As the founder and chairman of this company and a client with my own assets here at Schwab, I want to reassure you there is no other place I would feel more comfortable with my bank deposits, cash, money funds, and diversified investment portfolio.

The Markets

For this past year, the financial markets have been struggling to overcome problems that arose initially out of a collapse in the subprime mortgage market. That in turn triggered larger economic issues which have led up to the current instability in the credit markets, and subsequent crisis in the financial services industry.

How bad is it? Market cycles like this are part of the process that a free market economy goes through.  But this is certainly one of the more pronounced ones in recent memory.  The discomfort of getting through it is awful for most of us, but in the end, it is a cleansing process that removes excess from the system and returns us to equilibrium. I’m encouraged that everyone within the government is now actively engaged in working on this problem. Over the coming days we’ll learn more about the resolution and how it will be put to work.

What is our advice during these trying times? Clearly, there is no single piece of advice that applies to everyone. Each of us has our own timeframe for investments and comfort level with risk.

But having lived through market downturns like this before, I do believe that everyone should review their portfolio to ensure that their asset allocation is in line with their long term targets. And if they are aligned, stick with it. During times of uncertainty, some investors make the mistake of trying to time the market by simply stepping out. History suggests that asset allocation, diversification and periodic rebalancing are the tools that investors should use to weather market downturns. Having the right investment mix doesn’t mean that the value of holdings will never go down-but rather helps strike the right balance between risk and reward given your goals. We’re available to help with that process if you need it. 

At the same time, I am mindful that some investors have grave concerns and are looking for safety at all costs.  For those people, there are solutions that should provide them comfort.  Despite the more dramatic news over the last two weeks, there are still many financial instruments that are managed to be conservative, and there are protections in the system such as FDIC insurance for banking products and SIPC for brokerages. In addition, the U.S. Treasury Department recently announced a temporary guarantee program that provides increased protection for money market funds.

In the midst of all the negative news, is there anything to be optimistic about?  I think there are some positive signs.  I think ultimately we’ll all be a healthier society coming out of it.  I also believe everyone, both individual investors and businesses are going to put a greater focus on risk management in the future, and regulation will become better, which will be healthy long term developments.

I hope this perspective on the current situation is helpful, but please contact us if you would like additional insight or help, either on the phone or at one of our branch offices. We are here to help.
 

Chuck Schwab