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What The Rich Do With Their Cash
#1
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 for 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.
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