Experts who work with the wealthy and observe their spending habits say rich folks are sitting on their cash. Just like the rest of us, they are worried about the future.
Suddenly uncomfortable with the nation’s monetary volatility, the wealthy are revisiting their expense and cost savings methods, says Chris Geczy, the director of the Wharton Wealth Management Initiative at the Wharton School in Philadelphia.
“They’re consuming less and saving more,” Geczy states.
Like so many other Americans, the affluent were “overextended” in real estate and investments gone sour, he states. Now they’re a lot more likely to invest in fixed-income vehicles. “They’re nevertheless scared of risk,” he says.
Investment expert Nancy Rooney has noticed this fear, too.
“There is really a subset who, since September and October, are frozen and so nervous,” says Rooney, the managing director and head of Northeast investment business for private wealth management at J.P. Morgan in New York, which boasts that it serves 51% of the Forbes 400 list from the richest individuals in the United States.
“They’re searching at their principal left and recognize, ‘If I lose any more, I’ll jeopardize my quality of life,’” she says.
Here are several methods the wealthy are saving within the present recession — and lessons regular investors can learn from the rich.
Put security first
These days, many wealthy individuals are considering about security more than yield, Geczy states. The rich are scouring the internet, searching for the best prices on certificates of deposit, money market accounts and other options backed by the Federal Deposit Insurance Corp., he says.
“They’re nevertheless hugging close to fixed income, Treasury expenses and fixed assets,” he states.
The FDIC insures deposits only up to $250,000, so multiple cost savings accounts at solid institutions are crucial to liquid returns, states Tim Grizzle, a certified public accountant, the CEO of Georgia Logic, an Atlanta monetary planner for high-net-worth people and also the author of “Creating Wealth in a Turbulent Economy.”
Rooney says that when shopping around for a bank, it’s important to appear into an institution’s overall financial wellness. “Your biggest choice this year is exactly where you’re going to put your cash,” she says.
Choose the right bank
As lengthy as you select a financial institution which is FDIC-insured, there will be no risk to the very first $250,000 you deposit. However, if a financial institution fails and is taken over by the FDIC, your rate of return could disappear, as there’s no guarantee an acquiring financial institution will honor your previous institution’s rate.
Banks that provide a rate of return that’s significantly greater than regular might be strapped and at risk of failing, Geczy cautions.
On the other hand, competitive prices aren’t necessarily a sign of trouble. For instance, some online-only banks can offer excellent rates simply because they do not have the expenses of a brick-and-mortar financial institution, such as rent and utility expenses.
It takes a savvy researcher to discern the difference between a financial institution that’s cash-starved and one that’s an efficient operator. If a bank provides an unusually higher return, ask questions, Rooney states.
“I wonder why it’s above marketplace — why do they need deposits so desperately?” she states.
Prior to choosing a financial institution, investigate its Bankrate “Safe & Sound” rating. And remember that not all cost savings vehicles are alike — some are federally insured, while others aren’t.