Quora Answer: Are Concerns about Huawei Espionage Legitimate or Political Posturing?

The following is my answer to a Quora question: “Are concerns about Huawei espionage legitimate or is it just political posturing?”

Huawei has been shown to be guilty of unethical behaviour with regards their pursuit of propriety property and their disregard for intellectual rights.  Their main target has been Apple.  They engage in industrial espionage against rivals.  What they have been accused of, however, is spying on their users, which is unproven.  The reasons for these accusations are primarily political and pertain to market hegemony.

Quora Answer: Do You Think Banks Would Make More Money If They Catered to Customers as Much as They Cater to Shareholders?

The following is my answer to a Quora question: “Do you think banks would make more money if they catered to their customers as much as they cater to their shareholders?”

Banks do cater to their customers.  Banking is a competitive industry.  A bank that does not cater to the market will not gain market share.  A bank that underperforms relative to its peers will have less profitability.  This non-performance will give investors less confidence in it, and they will sell their shares.  This will cause the shares to drop, and this will affect the overall equity of the bank, which reduces its leverage.

If the bank continuously underperforms, it will start to make losses, and these losses will put downward pressure on its stock, causing the market to bet on a fall.  This will affect its equity further, reducing its leverage, causing the bank to recall loans and reduce its loan portfolio, further causing it to lose market share.

If this is not arrested, the bank will eventually be bought out, or fail outright.  Shareholders and investors are also customers.  Debtors are customers.  Other banks are customers.  Depositors are customers.  They are all inextricably linked.

Quora Answer: Do You Believe Returning ISIS Fighters Should be in Prison?

The following is my answer to a Quora question: “Do you believe that returning ISIS fighters should be in prison?”

Personally, I think ISIS fighters should not be imprisoned.  A lengthy incarceration is a cost to the state and tax payers.  I personally do not believe that they can be rehabilitated either.  Ideally, these people should be put on trial, prosecuted to the full extent of the law, and they should be executed for sedition and waging war against the state.  However, we have to consider the unfortunate reality that a trial and execution would actually function as a propaganda tool for ISIS, turning these people into martyrs.  An alternative to either is to simply take the pragmatic approach of having them quietly eliminated, and their bodies disposed off, in a manner where they cannot be found.  This should be done without fanfare or even official acknowledgement.

Quora Answer: Despite Being the Same Nation around 50 Years Ago, Why is the Average IQ of Malaysians Lower Than Singaporeans?

The following is my answer to a Quora question: “Despite being the same nation some 50 years ago, why is the average IQ of Malaysia so much lower than that of Singapore, who has taken the first spot in the world rankings?” 

I was not aware that there are some sort of rankings for IQ, let alone that Singapore is top of it.  I am sceptical.  How do you quantify such a thing?  That aside, IQ is nurtured through the education system.  Singaporeans are not inherently smarter than Malaysians.  Singapore has a more cohesive education policy, and spends much more on it than Malaysia does.  You get what you pay for.  That is why the best and brightest in Malaysia study here if they can.  It is not because they have a higher IQ; it is because, like any reasonable person, they want to take advantage of opportunities to better themselves. 

The dire state of Malaysia’s education system is a direct result of their bumiputera policy, which elevates some racial groups at the expense of others.  This has led to various reactions, and one of them is vernacular schools for the Indians and the Chinese.  Another major issue is the madrasah system.  Nobody went to a madrasah and came out smarter, because the system emphasises rote learning, and discourages thinking. 

There are racial quotas in the universities, which do not take the best and brightest.  And due to these same reasons, and political pressures, the courses are dumbed down so bumiputera students, mainly Malay, can pass.  They are not properly equipped to thrive in the real world.  Now, imagine the effects of these policies over several generations, and we can understand how Malaysian has devolved.  There is nothing wrong with the IQ of Malaysians.  Their leaders and the system failed them.

Quora Answer: Can You Take Out a Life Insurance Policy on Your Brother-in-Law if You Find Out He Has Only 6 Months to Live?

The following is my answer to a Quora question: “Can you take out a life insurance policy on your brother-in-law if you find out he only has 6 months to live?”

No.  Firstly, there is no insurable interest because he is your brother-in-law.

Secondly, assuming there was insurable interest, if he has only six-months to live, I assume he has a terminal condition.  That terminal condition is a pre-existing condition that will not be covered.  You cannot hide it because he will fail the KYC, the medical questionnaire, and they will definitely be able to pull the records.

Quora Answer: What are Some Pros & Cons of a Sole Proprietorship versus a Limited Liability Company, in Singapore?

The following is my answer to a Quora question: “What are some pros and cons of a sole proprietorship versus a limited liability company, in Singapore?”

A sole proprietorship is a lot easier to run than a limited liability company.  That is the only so-called advantage.  There are several reasons to start a limited liability company.  These reasons are worth it, despite the extra paperwork required.  One reasons is to create a structure where there is more than one person, with some being shareholders, and others being directors.  The legal relationship is quantified, and therefore, easily administered.  A company allows you to incorporate capital injection and drawings in a transparent manner.  A company mitigates your tax liability, lowering your tax bill because you are taxed after expenses, not on gross income.  With a good accounting system, you are able to expense out a lot of activities.

Despite what many believe, a limited liability concern does not always protect your assets in the event of a bankruptcy petition.  That is a myth.  This may be true for a company loan from an individual or another company.  When a company takes a loan from the bank, the documentation clearly states that the not only is the company liable, but the directors are personally liable as well.  This means when you are sued by the bank for a default, and the company is broke, the bank will go after the directors.  The bank always starts with the director with the most assets, and he may not even be an executive director, or the one who signed the loan.

A company does protect you from litigation pertaining to non-performance of a contract, or non-payment of services and goods.  In such a case, the company is liable, not the directors.  This is useful, especially in litigious industries such as shipping.  NOL, before they were bought out by CMG, structured their fleet management such that every single vessel was owned by a company.  For example, we take the old NOL Sardonyx.  The vessel owner was Sardonyx Pte. Ltd.  Sardonyx Pte. Ltd. would be a wholly owned subsidiary of NOL.  The vessel would be managed by Neptune Shipmanagement Services Pte. Ltd.  This spread the potential liabilities around.

In the event that NOL Sardonyx collided with another vessel due to negligence, for example, and sank, there would be a massive bill.  First, would be the bill for the loss of cargo and crew. Then would be the loss of vessel itself.  All of this would be taken care of by insurance, but there would not impact on other vessels in the fleet since this would be a separate company legally.  So, there is no reason that the reinsurer can raise premiums on the remaining vessels of the fleet.

Second, there would be the bill for pollution, under MARPOL.  There might be fines and civil penalties under SOLAS.  If this happened in port waters, or near a tourist resort, there will be civil suits for loss of earnings.  Perhaps the estate of the officer might sue for wrongful death.  In the face of adverse judgement, Sardonyx Pte. Ltd. would declare bankruptcy, and there is no award to be claimed.

NOL, the parent company, is shielded from further legal and financial action because they are a separate company, even though they are the sole owners.  This also means that any financial impact on the subsidiary does not affect the leveraging of the parent company negatively, such as a major fall in share price.

There are a lot of uses for limited liability concerns.  As the name suggests, liability is limited to the capitalisation of the company.  A $100,000 paid up capital concern can only be sued to $100,000.

Quora Answer: What Do You Think of Former ISIS Members Returning Home, to the West?

The following is my answer to a Quora question: “What do you think of former ISIS members returning home, to the West?  How big is the scale of this?  Is it possible to stop them at all?”

It is estimated that there are several thousand such returning foreign fighters.  These numbers are in addition to hundreds more that are trying to blend into genuine refugees.  They are not only returning to the West, but to countries all over the world.  In Southeast Asia, where Singapore is, it is estimated that there are around 5,000 returning jihadists.

From a security perspective, this is a major threat to stability and the cohesion of the state.  This threat, if not adequately addressed, has the potential to grow because of their propensity to recruit from the disenfranchised sections of society, and radicalise them.  Whilst we cannot outright stop terrorism, any more than we can stop crime, we can put in place measures to mitigate their effects, and bring down incidences to almost negligible numbers.  I am quoting from the Singapore experience, and how we address radicalism in a multicultural secular state that cannot close its borders, because we are an international trade and finance hub.

Firstly, to address Muslim extremism, we have to understand exactly what we are dealing with from a doctrinal and historical perspective.  Almost every major Muslim terrorist group, from ISIS to Al-Qaeda, to Boko Haram to every other local group with pledged allegiance to one or the other is based on the exclusivist teachings of Wahhabism, a heretical sect that arose in Arabia 300 years ago.  The founder was Muhammad ibn ‘Abd al-Wahhab.  The descendants of this genocidal mad man are not the foremost clergy in Saudi Arabia.  We can thank the British for the current state of things.

As long as Wahhabis were killing other Muslims, Sunnis and Shi’ah, the rest of the world was unconcerned.  When Wahhabism, or Salafism, as they are also called, spread amongst Muslim minorities in the West, and in secular states such as Singapore, it created that critical mass of potential adherents that could be pushed over the age to wage war against the “infidels”, anyone, especially Muslims, who did not share that ideology.

To address groups such as ISIS at the roots is to attack their ideology and discredit it.  Not every Wahhabi is a rabid radical, but every Wahhabi subscribes to some form of exclusivism.  They ban celebrations of secular holidays, even birthdays.  They are against music and singing.  They demand their “rights” and seek to create ghettos, cutting off interactions with the wider population.  This makes them difficult to police, and severs the relationship between this community and wider society.  That is what makes it easier for them to attack their fellow citizens, their neighbours and their community.  They have been indoctrinated to see them as the other.  The state must never give in and allow them their creeping Islamism, whether it is something as innocuous as their demand for the hijab, to their demand for separate eating places.  In our experience, these people eventually start to demand that others, including non-Muslims, adhere to their limited, literalist interpretation of Islamic jurisprudence.

It is important for the state to have Islamic scholars and experts they can trust.  This can be a challenge.  Sometimes the very Muslims tasked with monitoring the spread of religious extremism are themselves party to it.  In one Southeast Asian country, which I will not name, the mufti became associated with the Muslim Brotherhood whilst studying in Egypt.  The person tasked with the registrar of approved scholars, and sitting on the fatwa committee, is himself a Wahhabi.  These people, once ensconced, are difficult to root out due to political sensitivities pertaining to the Muslim minority.

Pertaining to returning fighters, or radicalised individuals attempting to join them, there has to be a deradicalisation programme.  We have to absolutely certain that these people are weaned off their ideological drug before releasing them into the population, after serving their time, if their crime is mere association.  Even then, they are monitored for a period of time thereafter to prevent reoffence.

If they are actual jihadist guilty of war crimes and genocide, the last thing the state should do is strip them of citizenship, even if that is an option in international law.  Stripping them of citizenship may also mean renouncing the state’s legal jurisdiction over them.  We do not need these criminals and terrorists overseas, beyond the immediate reach of our security forces, recruiting new terrorists and planning attacks.  What the state needs to do is take custody of them, and detain them according to the instruments of law.  They should be tried, and subjected to the severest penalties.  If the death penalty is an option, execute them, and dispose of the bodies.  Their graves should not be allowed to be a place of homage by those who would make them martyrs to the cause.

When it comes to religious inspired violence and terrorism, we should treat them as an existential threat.  The worst of these people cannot be reasoned with.  We do not expect any quarter.  We should give none.  There are no half measures in seeking to eradicate them, down to their sympathisers and enablers.  This means banning preachers or detaining them, shutting down organisations and businesses, banning publications and multimedia, and using the full force of the law to seize their assets.  We must remember that these jihadists only need one lucky break, and we have mass casualties.  We could make thousands of arrests, and execute dozens of them, but they only need one 9/11, one Bali Bombing, one London Bridge Attack.  In that light, I can live with harsh measures against them.

Quora Answer: If I Have Two Travel Insurance Policies, What Prevents Me from Claiming from Both Simultaneously?

The following is my answer to a Quora question: “If I have two travel insurance policies, what prevents me, except good faith, from making the same claim for both of them?”

There is a process to check if multiple claims are made on the same incident.  You are far from the first person to think about this.  Making a multiple claim is considered fraud.  Whilst it is unlikely that the insurer will report you considering how small the claim likely is, they will not only decline to pay your claim, but all the insurers will cancel your coverage and refund your premium, less costs.  They can cancel coverage because there is a clause in the claim form where you have affirmed that you have no other similar pending claim.  If you lie on that, it nullifies your coverage.  This will put you on a blacklist, and make it almost impossible to get future coverage from the same insurer.  Other insurers may also decline coverage. 

In the unlikely event that they have paid out for the claim before realising this, the insurer will demand the money back, and they will take legal action if necessary.  They will do so even if the amount claimed is less than the cost of legal actions because they do not want to encourage this, and will make an example of you.

Quora Answer: How Do I Raise Capital for My Ideas for Some Products I Think Could Take Off?

The following is my answer to a Quora question: “I have a few ideas of some products that I really think could take off but I do not have the capital.  What should I do?”

Firstly, do some research, and refine your idea.  Do a cost benefit analysis, and costing.  Write a business plan.  The three things an investor will look at to decide if he will read further, is the executive summary, the exit strategy, and the projected return on investment.  The executive summary should not be more than a page.  The exit strategy details when the investor may exit, and where the business is going with the idea.

Secondly, network to find potential investors.  Qualify them, and do not simply give your idea to every yahoo who has money.  If they have your idea and the business plan, they do not need you.  Always hold something back, and never tell people everything.  If it is feasible, consider a patent or copyright, depending on what your idea is.  Get the investor to pay for it, if possible, but make sure that ownership is yours.

Quora Answer: How Wealthy is the Wealthiest Person You Know & What Do They Do?

The following is my answer to a Quora question: “How wealthy is the wealthiest person you know, and what do they do?”

The wealthiest person I personally know, manages a family office that has funds of several hundred billion in assets.  His extended family has majority stakes in two banks through several dozen vehicles, and they entire family group of companies, trusts and foundations is over 200.  From an external point of view, that is not obvious. The great-grandfather had several wives, and the children used the mothers’ surname, not the father’s, so no one would immediately realise that they were one extended family.

The family made its initial money supplying weapons to the Chinese fighting the Japanese in the 1930s.  They then diversified into banking, manufacturing, telecommunications, and other businesses.  The Chinese Communist Party never forgot their help during the war against the Japanese, and their sacrifices during the Japanese government.  They parlayed these concessions into further businesses.

I have learned a lot just by listening to him.  For one, I understand that the absolutely wealthiest people, are very low profile.  They pay their taxes, they abide by the letter of the law, and they never draw attention to themselves.  There is a certain security in anonymity.

Quora Answer: Why are Latin American Gangs Not Labelled Terrorist Organisations Like Al-Qaeda & ISIS?

The following is my answer to a Quora question: “Why are Latin American gangs not labelled terrorist organisations, like Al-Qaeda and ISIS?”

Gangs are criminal enterprises, not militant groups that intend to overthrow the state or limit its sovereignty.  When any organised is labelled a terrorist organisation, it implies that they are engaged in asymmetrical warfare, or a low intensity conflict with the stated goal of compromising the state’s ability to govern a specific region.  Most criminal enterprises do not have this intent.  They only seek to profit from illegal trades and services.

It is possible, however, for a terrorist organisation to be engaged in a criminal enterprise as a means to fund their struggle.  In fact, this is quite common.  It is also possible for a criminal enterprise, such as a drug cartel, to grow so wealthy and influential that it challenges the state in ruling a specific region.  In such a case, where it wages war on the state for control of its region of influence, it may be classified as a terrorist organisation.

Quora Answer: When Berkshire Hathaway Buys Shares of a Company, What Kind of Broker Does It Use?

The following is my answer to a Quora question: “When Berkshire Hathaway buys shares of a company, what kind of a broker does it use?”

A company that size and reputation does not need to use brokers.  They are not just buying shares, but stakes.  That means they have a legal team negotiating a special price, and a package, and may even demand a seat on the board.  Companies would normally welcome their participation and may even offer discounts and incentives because they have much more to gain.  The mere fact that Berkshire Hathaway bought a stake would raise their profile, and there would be a sudden interest in their stock.  This will cause the stock price to rise, which immediately increases their market capitalisation.  Also, having such a company as a shareholder opens doors, making it easier to leverage the stock, to get loans and concessions from creditors.

Quora Answer: What Get-Rich-Quick Schemes Seem Appealing but End in Failure?

The following is my answer to a Quora question: “What get-rich-quick schemes always seem appealing but always end in failure?”

These schemes sell you the fantasy of wealth with minimal effort.  That is why they are appealing, and they have to be appealing to attract the gullible and the naive.  They end in failure because there was never really any grounding in business realities.  If there was a real way to get rich quick, whoever discovered it would exploit it, and guard their secret jealously, so as to preclude competitors.  He is not going to sell it to you at minimum cost in several “quick and easy lessons”.  It takes a special level of stupid to believe that, and unfortunately, that is a lot of people.

One of the greatest scams is multi-level marketing.  If a product and service is good, there is no need to go through the charade and cost of “direct selling”, which is anything but “direct”.  If we were to calculate the amounts supposedly paid out in reward and reimbursements, these companies should have been broke a long time ago.  But they know that it is impossible for the downlines to maximise their profit.  We have to consider that if one person has 10 downlines, who each have 10 downlines, that is 111 people to be paid.  How many people do they have to approach, and what is the percentage that is inclined towards this sort of business?  This demographic, especially when you factor in other competing MLMs, means they effectively cannibalise each other.

Another scam would be groups that sell ideas of online marketing, as if simply having a website earns a lot of money.  Most people never go to these random sites.  They make money because stupid people are willing to pay thousands to learn the “secrets” of web marketing.  A local example here would be the so-called Profits Academy.  If there really were a method to make money from internet marketing in the way they claim, we would be looking at another Ali Baba or Amazon.  Such a business would move up the food chain, and dominate the portion of the supply chain that allows them to control a node of demand.  Instead, they sell rubbish seminars to gullible idiots, and they have to write glowing testimonials as part of this mentorship contract.

As long as it involves no work, or minimal effort, it is unlikely to lead to wealth.  Even organised crime requires a lot of work.  There is no such thing as something from nothing.

Quora Answer: What are the Biggest Lessons You Learned in the Insurance Industry?

The following is my answer to a Quora question: “What are the biggest lessons you have learned in the insurance industry?”

I have learned, over the years, that it is not just about the policies you buy, but how you structure them.

I have learned that the wealthy and the masses buy the same policies, but for different reasons.

I learned that there may be ways to get around having pre-existing conditions covered, at a reasonable cost.

I have learned that most people who buy insurance do not fully understand their coverage.

I have learned that the insurance industry in Singapore, is a lot different from the rest of the world, and that in certain other countries, such as the US, it is predatory.

I have learned that having good coverage is useless without understanding how to claim for it.

I have learned that insurance plans can function as financial instruments, creating immediate estates, as collateral for loans and credit lines, and as a means to move funds.

I have learned that the right sort of insurance coverage, particularly in large projects, saves a lot of money.

Quora Answer: Are People Who Joined ISIS & Burned Their US Passports Considered to Have Renounced Their Citizenship?

The following is my answer to a Quora question: “Do you think people who have joined ISIS and burned their US passports should be considered as having renounced their citizenship?  Should we allow them to return to face treason charges or be left, and dealt with as war criminals and terrorists?”

Whilst burning your passport is an offence, it does not carry the penalty for sedition.  It is not the same as renouncing your citizenship because renunciation of allegiance to the state is a legal process.  Joining ISIS is a far more serious offence, that of sedition and waging war against the state.  The penalties for such an offence are severe, up to, and including capital punishment.

The state is not allowed, by international convention, to strip the citizenship of a citizen, and make that citizen stateless, unless said citizen is already a citizen of another country.  In any case, if we want to be pragmatic about this, and not emotional, a country would always want to take back citizens guilty of joining any terrorist group.  Simply stripping them of citizenship does not make these people go away.  They are still free, elsewhere, to reconnect with reformed terrorist networks and threaten the state.  It would make more sense to bring them back and ensure that they are taken into custody, tried and sentenced.  And if that sentence is death, it is a far more permanent solution than having them plotting overseas.

Investing in a Volatile Market

There is quite a bit of literature that the market is inherently volatile, punctuated by moments of seeming predictability.  However, when viewed from a macro perspective spanning years, the market actually has predictable broad trends.  That does not mean this volatility is inherently bad.  In fact, these periods of volatility should be viewed as opportunities.

We embrace this volatility and adapt to it.  What we recognise as volatility is the aggregated result of people being emotional and tied to sentiment, their hopes, their panic, their optimism, moving the market as an overreaction to events and trends.  Sometimes this is the result of manipulation, even by state players, on a massive scale.  At other times, it is the result of people seeing something in a news clip on a related counter, something on a very small scale.

We ride the swells of this volatility by keeping to a few principles.  We look for well-run companies, with good market fundamentals.  The numbers do not lie, unless you are looking at them in the wrong context.  We consider where these companies are positioned, and pay more attention to where they are going, and not invest on the basis of legacy.  That is sentiment, and sentiment is an emotional connection, not a reality of the company position.

This is where investing over an extended investment horizon really works.  What we are doing is utilising the magic of compounding.  This is what real investment actually is.  People trying to spot a bargain, or following a hot tip are not investors.  They are gamblers.  Often, they are leveraged, which means they are utilising compounding the wrong way.  Compounding works for the investor when it is about taking and holding a well-researched position over an extended period, letting the compounded interest of the stock generate growth.  A speculator, on the other hand, is borrowing, and compounded borrowings are a quick way to lose money.

Because of this compounding effect, the best time to take a position is often when the market is down, replete with bad news.  Due to market sentiment, even good stocks are undervalued.  The trick is sniffing out gold from the dross in all that.  There is a method to this, and it based on logic.

Firstly, we identify growth industries.  For example, in a pandemic economy, we expect growth in online retail, technology, and healthcare.  It does not take a genius to figure that out.  In certain markets, we all consider light manufacturing, because somebody has to make all that protective equipment, gloves and masks.  And obviously, the stock with the greatest growth would be pharmaceuticals.

Secondly, we identify growth regions.  Specific things are made in specific parts of the world.  Some parts of the world have less potential than others, and we also factor in the political and currency exposure.  This is obviously personal preference.  For example, I am not too convinced on the growth of the British economy post-Brexit, considering they are losing access to the Common Market, with no viable replacement.  For example, the nearly 40 million unemployed in the US means we need to consider the market with caution.  It would take a massive restructuring of the US economy to fix that; it is no longer a case of simply opening the economy.

Finally, we look a all these factors, and consider where the market will be in a decade or fifteen years from now.  This also means considering currency exposure.  One of the considerations is also lifestyle changes in a post-pandemic economy.  This means shorter supply chains, less emphasis on just in time, and a decline in the retail sector.  People are used to having things delivered to their doorstep.  It would take a very good reason for crowds to throng malls.

In all this, it is important to be diversified, across industries, markets, and demographics.  It is a foolish investor who puts all his eggs in one basket, no matter how bullish he is on any company or country.  Investment should be divested from sentiment.  This diversification protects against market volatility and inflation, since there is always growth somewhere.

When it comes to entering the market, it is best to use strategies such as dollar cost averaging, instead of trying to time the market.  Most people who time the market fail.  Unless you have supercomputers, teams of analysts and algorithms, the average investor will fail.  Investing is a science, not superstition.  This allows us to ride the volatility of the market.  Ultimately, it is time that allows our investments to grow.

Quora Answer: Does Taxation Not Inherently Involve Redistribution of Wealth?

The following is my answer to a Quora question: “Does taxation not inherently involve redistribution of wealth?  If so, how can Conservatives accept that government has the right to tax but not the right to redistribute income?”

Yes, it does.  Whether directly or indirectly, that is an underlying effect of taxation.  If by Conservatives, you are referring to the American Right, you have to understand that the political discourse, particularly in issues of economics, has becomes so toxic, that it is no longer based on reality.  What has happened is that certain policy positions have become ideological points of faith, held to be absolute truths, and facts have no place in that discourse.  It is like religious doctrine, not a rational discourse.

The underlying reasons for the opposition to wealth distribution is actually a form of the Prosperity Gospel, since the Christian Right form the core of Conservatives.  This innovated doctrine has no basis in orthodox Christianity, but has managed to gain a foothold in the United States.  What it holds is that some people are meant to be wealthy, and some are meant to be poor.  For the wealthy, their wealth is a divine right conferred by Jesus (a.s.) because of his approval of them and their values.  Part of those values seem to be about being overwhelmingly White, which is a remnant of the apartheid South that was not dismantled after the Civil War.

Accordingly, they hold the irrational belief that the poor deserve their poverty, and the wealthy deserve their wealth.  To redistribute income equitably, or even shape policy to allow more socioeconomic mobility is to challenge this article of faith and upset the caste system.  Accordingly, politicians who support this position have embraced the faux philosophy of Ayn Rand as espoused in “Atlas Shrugged”.  Economics as a social science is not their strong suit.  In fact, there is a general disdain for any form of intellectualism.  This is a symptom of a wider class divide and a nascent idiocracy.  If this is not addressed, the US will decline rapidly.

Quora Answer: Where Do Wealthy People Store Their Money?

The following is my answer to a Quora question: “Where do the wealthy hold their money?”

The difference between the truly wealthy, and the masses, is how they organise their assets.  For one thing, wealthy people avoid holding their assets, whether property, stocks, or even art, in their name.  Assets belong to companies, trusts and foundations.  Assets held in such entities are considered distinct from the owner of these entities.  This mitigates tax liability, since a company or trust is taxed after liabilities and deductions, whereas an individual is taxed on gross income.  This is significant, because it is possible to expense out many things that we spend on.  Visit your friends overseas flying first class?  Business trip.  Dinner in an expensive restaurant with your buddies?  Business entertainment costs.  Bought a new car? Company asset.

Assets in foundations have tax deductions depending on what the foundation does.  For example, in some parts of the world, including Singapore, there is a tax deduction for donating art to certain institutions.  If that foundation is yours, then you have effectively donated to yourself, and got a tax deduction out of it.  For example, you could buy fine art at a certain price, direct from the artist.  You get it at US$1 million.  You then have it appraised by an appraiser you hired, and it is now US$5 million.  You then make a donation to a foundation you set up, that runs, or is a major donor to a museum.  Depending on the legalities of the place, that donation is tax-deductible up to, perhaps, three times the appraised value.  You now have a tax credit of US$15 million on US$1 million spent.  Should you choose, somewhere down the road, you could even arrange for the foundation to gift you that same piece of art for your services to the community, and hold a gala dinner, raising funds for a charity you started, among donors, for further tax credits.

Assets in companies and trusts are protected from bankruptcy proceedings and asset seizure by creditors.  Assets in trusts are confidential, unlike companies, and you need not disclose them.  Assets in companies may need to be disclosed, but there are ways to hide things in plain sight.  Assets in companies and trusts are also protected from asset seizure and claims in disputes and in acrimonious divorce proceedings.  The problem with pre-nuptial agreements is that they cannot cover everything, and the determined person may find ways around it.  You have to prove each and every item is not a matrimonial asset, in some cases.  But assets in your personal irrevocable trust is considered to belong to a distinct entity - the trust.  This is despite the fact that you can make yourself the settlor, the sole trustee and the sole beneficiary.  It is you giving to yourself.

Another asset class that wealthy like better than normal people is insurance policies.  For example, wealthy people buy a lot of investment-linked plans.  They can easily afford to put money in high performance funds, and get separate, high net worth coverage plans, which are superior to most retail plans.  But when it comes to an investment-linked plan, the coverage is declared, not the funds inside the plan.  For example, a person can easily buy a plan with a regular premium of $2,400 annually.  The coverage may be US$100,000 for death, which is pocket change.  But an investment-linked plan allows you to top up whatever you wish, as long as you can prove in the KYC that you are the legal source of the funds.  A plan that has a face value of US$100,000 coverage could have millions inside.

In some parts of the world, some insurance companies allow withdrawals from the investment-linked plans to be in the form of cheques, and they can be sent anywhere that you specify as the correspondence address, perhaps even a neighbouring country.  That cheque is then cashed in that country, and you have effectively moved money without going through the banking system, and without scrutiny.

The wealthy, and the masses understand finance differently, and are effectively playing a different game.  Unlike the masses, wealthy people understand the need and value of a good financial advisor who understands how the system works, and they will pay for it.  None of the things above are illegal, which is very important.  There is absolutely no need to break the law when you can play with the letter of the law.