The following is
my answer to a Quora question: “If US banks are FDIC
insured for only US$250,000, where do rich people keep their millions or
billions of dollars?”
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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