Monday, October 11, 2010

Caching Assets

Our friend Bison Risk Management wrote a great post about caching assets. I strongly suggest you read it and think. I also have some thoughts.

First I think it is important to consider that kind of scenario is making you want to cache assets. Mostly we are talking about physical cash or precious metals though I guess the same stuff pretty much applies to bearer bonds and bags of diamonds for the super rich. Maybe you are worried about a banking holiday or shenanigans with the dollar or other economic/ government issues. While of questionable legality maybe you want to maintain a low profile so keeping cash in the bank is out or you need to hide assets from somebody. Maybe you're just a shady guy and might need to leave town for a few weeks. While I obviously do not condone hiding money from the government, dodging court settlements, and such I will talk about them in a judgment neutral fashion.

If you are trying to hide 50 thousand dollars from your ex business partners lawyer you just need to keep it off the radar. Nobody is going to break into your house looking for it. If you are into something shady and occasionally need to take off for awhile unexpectedly then you probably want your running money stored someplace discrete. If you hear Big Lou is looking for you then going home to get into the wall safe would probably not be very smart. However it is unlikely that Big Lou knows anybody at the bank in another city 100 miles away where you keep a few thousand dollars.

Broadly speaking there is a compromise of security versus access. For example if you keep a big stack of money on the living room table it is very accessible but not very safe. Conversely anyone with modest handyman skills can hide compact items in such a manner that you would have to destroy the house apart to find it. That same stack of cash would be very safe but not very accessible. This theme of access versus security as well as security from different threats will drive your decision making.

Some smart people suggest that if you are going to keep cash of precious metals in your home or office you have two safes/ locations. The first is obvious and easily accessible. This is your 'diversion' safe. I also think this is a good place to keep stuff you want to access more than once in a blue moon. Your other location is well hidden maybe in a wall or floor type cache. So lets say you keep ten grand and some precious metals at home. I would keep a couple grand in the diversion safe. First to get someone to stop looking and not find the real stash. Secondly there are some times you want to get to some cash in a reasonably convenient way. Don't want to need to take a hammer to the wall to buy a gun, at a very good price, for cash on the weekend. Same deal if your neighbors house burns down and you want to give them some cash to help them out.

I think it is really important not to put all your eggs in one basket here. Of course every method of caching discussed has weak points. I would say that as a general approach using different methods to limit your overall risk is a sound idea. Your goal is to mitigate risk and preserve at least some of your wealth. If your home burns down the safety deposit box at the bank is still fine. If your home is broken into it is doubtful they will search the nearby park. Especially the nasty spot away from the trail with the prickly bushes with a metal detector.

How many baskets to have is an interesting question. The amount of assets you are looking to cache is a big factor. Common sense dictates some kind of threshold what amount of assets is worth establishing a cache.

It would be worthwhile for a rich guy trying to stash a few million dollars worth of assets to have a half dozen or more separate caches of different types. He might have a diversion safe, wall cache, safety deposit box, buried cache, safety deposit box in countries B and C, wall cache in your vacation home in country B and on his boat. He would need to balance the upper limit of size/ value he wants in any one cache with being overwhelmed by trying to set up too many caches. Really the only upper limit on the total number of caches would be the amount that you could realistically establish and keep track of. If you have far more modest means and want to cache a few ounces of junk silver and a couple hundred bucks in small bills then it probably isn't worth a second cache let alone a half dozen. For most normal folks who are somewhere in the middle three or four caches is probably a reasonable number.

As a final thought I just want to remind you that caching assets is a very personal decision. It is based upon your financial situation, what you are concerned about, your lifestyle and goals. You might want more eggs in one basket for a particular reason. However the concept of having multiple diverse baskets should probably be followed none the less. There is of course risk to all the methods we have discussed. If you can't sleep well at night with a bunch of cash in the house then don't keep a bunch of cash in the house. The goal of this is to be and feel more secure, not the opposite.

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