3 Key Places Where Your Digital Assets Are Held in the USA
Can you review and see where do you have your digital assets? I am talking about only digital assets here. Please exclude physical assets like real estate and digital currency bitcoin :-)
In the USA, your digital assets will stay in one of the following three places.
- Brokerage Firms
- Banks
- Insurance Companies
Let's dive bit deep to discuss each one of them.
Brokerage Firms
These are our fidelity, Vanguard, E-trade ... etc. For most of us, our retirement accounts like 401k, IRA, Roth IRA are with these brokerage firms. We normally hold our stock portfolios also here. It's easy and only few clicks to invest in stocks through the online access provided by these brokerage firms.
Banks
Most of us have at least a couple of bank accounts. Salary gets direct deposited into these bank accounts. The money in the bank keeps accumulating until we take specific action and move the money to invest somewhere. The interest rates banks give on the money lying in our checking accounts is negligible. If we move them into CDs with the bank, we can get 2 to 5% interest rate. CDs are not bad and at least they compensate some portion of the inflation with interest earned. It's better than money just sitting in the current account and loosing value to inflation.
Insurance companies
Things get interesting here. Lot of us think insurance companies for risk coverage and not for wealth building. But let's review a fact and see how much money banks are saving with insurance companies. Checkout this link to see how much each bank is having with the insurance companies. As of June 30th, 2024, the top 3 banks of the USA, Bank of America, Wells Fargo, and Chase are having 24 billion, 18 billon and 12 billons dollars respectively with insurance companies.
While individuals are keeping money in the bank and earning maximum 2 to 5% interest, the banks are investing our money with insurance companies and earning 6 to 8% . Individuals pay taxes on the mere 2 to 5% returns on the CDs with banks, while banks are getting 6 to 8% tax advantage returns by investing with insurance companies.
Closing thoughts
Leaving 6 to 8 months of family expenditure as liquid cash in bank is good. Ideally, everything else should be invested so that the money is working for us when we are asleep. While investing in market through brokerage firms is good, it's smart to learn from what banks does and do it on our own. Investing some portion in insurance companies wealth building vehicles like cash value life insurance (CVLI) and annuities is a good idea. While CVLI builds wealth in tax efficient manor, the annuities act like a private pension. CVLI and Annuities also act as hedging against the riskier stock market investments we do in our brokerage accounts. If you want to know more about CVLI, check out my previous article here. In the upcoming weeks, I will be writing about annuities.
The real diversification is not just spreading money across different stocks and mutual funds but also diversifying across the 3 types of financial institutions we spoke about.
I would like to leave you with one question. During the different major financial crisis happened in the USA, which institutions stood strong and kept growing. Banks or Insurance Companies?
That's a wrap this week. Happy learning!
