07 July, 2020

Quora Answer: If US Banks are FDIC Insured for Only US$250,000, Where Do Rich People Keep Their Money?


The wealthy understand wealth differently from the masses.  For one thing, they understand that the bank is there to make the bank money, not make them money.  Accordingly, the wealthy do not have the habit of having extremely large amounts in cash, and having that cash in only one bank.

FDIC and its equivalent in other parts of the world, insure a specific amount, per person, per bank.  That means, having a few million dollars in cash, that money is not kept in one account, or in one bank, or even under one name.  Much of the wealth of the wealthy is kept in investment vehicles such as companies, funds and trusts.  Having millions in cash in your name also means being tax liable for that amount in your personal capacity.  Having funds in a vehicle mitigates tax liability, and allows them to expense out for tax relief.

Most wealth is held in stakes in businesses, in going concerns, where it is tied up in the value of the stock.  That wealth is paper wealth, and is not realised unless the stock is sold, or borrowed against.  Another means of wealth is a diversified property portfolio, or other physical assets such as mines, factories and machinery.  In essence, keeping a large proportion of wealth in cash is the least effective way of growing it.  Cash is the most vulnerable to inflationary pressure and currency risk.  That is putting all the eggs in one basket.



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