The Finance Professor: Protecting yourself in times of Trouble

The post below is from The Finance Professor, enjoy!

In 2008, there was a story about a wealthy person who had large bank deposits. One evening, he didn't sleep well because he had deposits of a few million dollars at Bank of America, which was technically insolvent. So he withdrew $500,000 and brought it over to the local Citizens Bank branch. As he was depositing the funds, he asked "who owns Citizens Bank?". The employee was beaming "Citizens is owned by Royal Bank of Scotland." OMG the man thought, this is bad ( as RBS, like BofA, was technically insolvent ). Again, another sleepless night. So, he took another 1/2 million and brought it over to the local Sovereign Bank branch. While depositing his $500k check, he asked, "who owns Sovereign?". The bank employee replied with pride "we are owned by Santander, the largest bank in Spain." OMG, another insolvent bank. He also had a brokerage account at UBS, again technically insolvent. After a few days, he realized that all money is electronic: a simple book entry in a computer. If the power goes out, no more money, no more wealth.

Russian oligarchs and ordinary Russian people are facing this issue now. You can flee Russia, but your Russian bank-card won't work anymore. Wealthy Russians are now faced with trying to prove the legality of their money, which is nearly impossible. Thus wealthy Russians are now only wealthy within domestic borders - their money is no good worldwide. Without the rule of law, money is difficult to protect. Purges of Russian elites occurred under almost every regime: the Tsar, Stalin, and even Gorbachev. This is why they spend their money, as you might not be able to hand it down to the next generation.

Doesn't effect us in the USA? Think again. History is littered with examples of clawbacks from the rich. Bernie Sanders and his crowd want to take wealth away via the ballot box. How do we protect ourselves? Gold won't protect you, its difficult to store, and what is stopping the storage guy from keeping your gold? Real estate is less likely to be confiscated, but eviction bans can turn rental real estate into negative cash flow. Crypto? The US government has already confiscated billions of crypto, so they can tax that or ban that anytime.

Travel is actually one of the best "investments". Travel enrichens and nobody can take that experience away. Its impossible to be truly educated unless one is well travelled and understands different cultures and ways of life. Investors who are properly diversified may take big losses certain investments but a properly diversified portfolio can withstand some total wipe-outs.

We have spent years trying to figure out how to protect a portfolio in times of trouble.

Don't worry about a nuclear war - humanity still has a good future both in the near and long term. Keep investing in quality equities, ignore most fixed income, and, when allocating capital over the next few years, focus on safety first.