Where Do Millionaires Invest There Cash To Keep it Safe posted at OOM by Special Agent Gibbs
Where Do
Millionaires Invest There Cash To Keep it Safe posted at OOM by Special Agent
Gibbs
By Joshua Kennon
I’ve been having a conversion about investing and money with the reader “Frat
Man” in the comments section of another post. He asked:
I also had one other question I have always wondered. Where do millionaires
keep their money? In the sense that FDIC
Monopoly When I went to hit
“reply” in the comments section, I realized that it was nearly 1,500 words so I
thought it might be better to just post it as its own in the event some of you
were interested in where billionaires and millionaires like Bill Gates or Lou
Simpson invest their cash. It really has nothing to do with beginners,
otherwise I could have gotten an About.com article out of it, but it might
still interest those of you who are curious about these sorts of things.
Here is my answer …
Where Do Millionaires Park Their Cash?
First, you have to realize that “money” in one sense doesn’t exist. It is an
idea. If you are talking about the green pieces of paper the Treasury
department prints, there is only about $575 billion in circulation yet
household assets in the United States are valued at more than $50 trillion.
every single United States dollar bill in the entire world, you would only have
1/100th of the estimated household net worth in the United States. The reason:
Those greenbacks are merely an exchange mechanism. They represent something
that people can trade to signify a claim check on society. In and of themselves
they have no value. We could have just as easily chosen sea shells or jars of
strawberry jam. The reason societies have preferred gold and silver over time
is they are difficult to mine, so it is very hard for governments, politicians,
kings and presidents to make the currency worthless by printing more paper.
The result is that most wealth isn’t held in the form of cash. In fact, I think
of money as being held in seven distinct forms (there are more but these are
the major ones):
Business ownership (stocks). If you own a chain of dry
cleaners that makes $1 million a year in profit, you could probably sell the
company for between $10 million and $15 million. You don’t have that money
“sitting” anywhere, but it is yours nonetheless.
Money they have loaned and must be repaid to them in the
future such as bonds, certificates of deposit, money parked in bank accounts,
and money invested in
began to print money so it became worthless, and a loaf of bread that
originally cost $5 is now $10,000, your oil may be trading at $146,000 per
barrel even though you have gained nothing in purchasing power, giving you an
asset value of $14.6 billion. The thing is, your purchasing power would be the
same because:
$14,600,000,000 would buy 1,460,000 loaves of bread if each loaf was $10,000
just like
$7,300,000 would buy 1,460,000 loaves of bread if each loaf was $5
That means that, measured in bread as an exchange, the government printing
money didn’t have an influence on your actual purchasing power. You can still
buy the same loaves of bread as you could before hyper-inflation. This is one
of the reasons famous investor Warren Buffett talks about the importance of
measuring gains in your net worth in “how many cheeseburgers you can buy”.
Purchasing power counts. Not dollars.
What Do The Rich Do With Their Cash?
If you are specifically interested in what the rich do with their short-term
cash, comparable to the middle class putting money in a checking or savings
account, there are several popular alternatives to those with at least a few
million dollars:
Establishing a so-called zero-balance account. The rich investor has his or her
money in bonds, certificates of deposit, commercial paper and other highly
liquid debt instruments. They write checks out of the account, which has $0 in
it, and at the end of the business day, the private bank sells off enough of
the highly stable, liquid investments to wipe out the negative balance in the
account, bringing it back to $0. That way, if the bank fails, it doesn’t hurt
the investor because the underlying assets are held in his or her name, not the
name of the institution. (This service is known as custody or, in some cases,
global custody. The banks will charge a small fee for it as a percentage of
assets in most cases.) Almost every intelligent rich person on the planet uses
some form of global custody because you don’t want to worry about losing your
shirt because a broker failed.
Parking the money directly with the United States Treasury in an account backed
by the taxing power of the United States government. They can buy short-term
Treasury bills and keep rolling them over until they need the money. Unless the
United States goes bankrupt by hyper-inflating, they are safe. Buffett
literally has tens of billions of dollars of Berkshire Hathaway’s money parked
in Treasury bills, bonds and notes at times. There is no risk of default or
bankruptcy unless the entire nation goes bust!
Physically holding cash in multiple currencies in safe deposit boxes throughout
the world. These aren’t insured, though, so there is that risk.
I hope that helps you understand how a lot of private banks such as Northern
Trust think about parking money for millionaires and other rich investors.
NESARA- Restore America – Galactic News
2013-04-14 09:21:36
Source: http://nesaranews.blogspot.com/2013/04/where-do-millionaires-invest-there-cash.html
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