Posted December 20, 2021
By Sean Ring
How The Rich Spread Their Wealth
- If youre concerned with the banks, there are many ways to minimize your risk.
- But the best ways are the ways rich people employ to protect their wealth.
- You can mimic the rich even if you have much smaller resources and capital.
The QuestionRude reader Geoffrey H. wrote me this great question:
Now that most banks have adopted "bail-in" rules for their used-to-be depositors, now-lenders, is it wise to spread deposits around multiple banks, have lower deposits in the banks, keep cash or gold or silver out of the banks or some combination? Or am I just an alarmist?
PS I enjoy your work!
Thank you, Geoffrey, and you are by no means an alarmist!
Let me tell you about my time in Hong Kong.
From Sales and Trading to Private Banking
I spent the bulk of my banking career in an investment banks sales and trading division. That means I had hedge fund managers and other institutional money managers shouting down the phone at me all day.
Not as glamorous as you think, trust me.
But the intellectual caliber of the workforce there, amoral though they may be, is staggering.
Almost everyone has a top degree - which used to mean much more to me than it does now - and is incredibly intense.
So you can imagine my shock when I got to the private banking side, where relationship managers know almost nothing about the products they sell.
Now Im not claiming all investment bank traders and salespeople knew that a CDOs-cubed were a terrible idea.
Watch The Big Short for confirmation on that.
But RMs are not known for their product knowledge. Its all about the relationships with them.
In Asia, the most essential thing an RM can have with a client is guanxi. Thats the network and connections that create mutually beneficial business opportunities.
Guanxi is closely intertwined in the Confucian philosophy - a philosophy that has shaped many Asian cultures - that self is extended to family, friends, and society to create a harmonious community. Guanxi implies an obligation that one has to another. In China, it is stated that the wheels of business are lubricated with guanxi.
***The power went out at this point. Many thanks to my good friend and editor, Chris, for getting this much to you.I will write all about the typhoon, the destruction, gas lines, and water shortage. But I also must tell you about the kindness, generosity, and community spirit - usual looting notwithstanding - as well.Its a testament to the people here and a damning indictment of what one radio commentator called the no-government city.An anarchocapitalists dream or dystopian nightmare? Ill let you decide.But first, let me finish this important piece for you, as I write from my coworking space in the city, which was somehow spared any destruction whatsoever.***
To be fair, the Chinese coined the term, but the West expanded upon the idea.
The West, through English Common Law, built a legal system that extended this trust to entire nations.
Thats one of the reasons what we may call bribery is just a gift to a friend in the East.
Interestingly, the distributed ledger technology upon which the blockchain is built looks to extend trust without custodians at all. There need not be a middleman like a banker if the peer-to-peer networks work on their own.
It eliminates the age-old question, Quis custodiet ipsos custodes, or Who watches the watchmen?
To me, eliminating at least some of the middlemen would free up valuable resources in terms of fees and certainly in terms of time.
After all, you probably dont need an RM if you can articulate your wants to a client advisor. Or, if youre expert enough, you can do much of this yourself.
Not knowing more about your position, I cant offer advice. (Well, Im not allowed to provide advice anyway.)
With all this in mind, lets talk about five ways to protect yourself.
Keeping Your Cash on Hand
Youll set off alarm bells at your bank if you withdraw $20,000. Thats for sure. But you certainly want to keep a certain amount that you feel comfortable with in your safe.
And put that safe underground. (The first place thieves will look is behind a painting.)
You dont need to go all John Wick, but my parents had a cool safe in our old house. It was a small one, but they put it under the rug in their closet.
If theres a master thief in the world that would look there, kudos to him. I wouldnt.
Besides the cool factor, youll know your notes are as safe as possible.
Keeping Your Cash in Multiple Banks
The average high net worth individual in Asia has at least five bankers.
On average, one banker gets half his wallet.
Wallet share is bankerspeak for how much of a clients assets they manage. The bankers never know for sure, but they can guess.
The next four bankers will get a piece of the rest. So its essential to be a good banker.
What does this mean for you?
First, retail and mass affluent clients often think one bank is enough and the banks count on it.
When I teach retail banking during graduate season, I teach that retail deposits are sticky. That means ordinary folk pick one bank and put all their money in it.
This isnt an issue since the average American has about $500 to their name.
But if youve got a chunk of cash, you should spread it between 3 to 5 institutions.
I know opening bank accounts isnt as easy as it used to be, but its certainly something you should invest time in.
That way, you can keep up to $250,000 in each bank, and all those deposits will be insured.
But even if you only stick $10,000 in each bank, youre much better diversified.
Keeping Your Gold and Silver in a Safe Place
I could be wrong, but I dont see why anyone would ever keep their gold and silver in a bank. Maybe a safe deposit shop separate from a bank. But I wouldnt even do that.
My good friend Michael once mentioned he has enough gold, silver, and ammo to defend his keep until the end of his days.
Id keep my gold and silver in a super safe under the floorboards in my house and never mention it to anyone.
If Biden or his successors outlaw privately owned gold and silver in the coming years, and your stash is in a bank, its game over - at whatever price they decide.
Investing in Crypto
Weve talked about this a lot.
Even if its just 2% of your portfolio, owning crypto is a smart bet. You cant lose your house, but you can participate in the upside.
And that currency is practically untouchable.
Especially if you plan on living abroad, just keep the crypto in cold storage.
Cold storage is cryptospeak for a device that resembles an old USB stick where youre crypto can be kept off-exchange.
Just always remember your password and key - and never lose it!
You dont want to wind up like this guy:
Wrapping Your Assets in a Company
This is too little spoken about.
If you own a company and structure it correctly with the help of your lawyer and accountant, you can use it to shield your assets.
Remember, you control your company, but the company owns your assets.
Its one of the best ways to protect yourself from lawsuits. It also keeps away unwanted bankers wholl try to manage your wealth.
In this newsletter, Ive long written that you ought to start up some sort of internet business that grooves with your passions.
Once it starts to make money, leave the money in there until you need it.
You can use the company as a savings vehicle.
If you build it big enough, you can sell it for a chunk and move to Switzerland, whose private bankers understand the meaning of the word discretion.
I hope that helps.
All the best,