If you’re like most investors, you probably think your money is safe as long as it’s diversified across different stocks and asset classes. But what if I told you there’s another critical layer of diversification you’re likely missing?
In a recent article, investing expert Marc Lichtenfeld revealed a terrifying personal story that highlights the importance of diversifying not just what you invest in, but where you keep those investments. As Marc explains:
“Shortly before the global financial crisis, I invested nearly all of my cash in what were supposed to be very short-term, very conservative notes… But when the economy and financial markets seized up, my broker froze those notes – and my cash along with it. I eventually got all of my money back, but it was a long year until I did.”
Marc Lichtenfeld
Can you imagine the stress and anxiety of having your life savings locked up for a year, with no way to access it? Unfortunately, Marc’s story is not unique. He goes on to share that over 100,000 customers using various “fintech” banking apps are currently locked out of their accounts due to a bankruptcy.
The lesson is clear: It’s not enough to diversify your portfolio – you must also diversify where you keep your money. As Marc puts it:
“Having multiple bank and brokerage accounts is not terribly convenient. You have to keep track of more accounts, more user IDs and more passwords. But just in case something unfortunate happens in the coming years – and let’s face it, between the economy, cyberattacks, a shaky electric grid and good old-fashioned mismanagement, it probably will – it’s a good idea to have assets in a number of different places.”
Marc Lichtenfeld
So what should you do to protect yourself and your hard-earned money? Here are 3 action steps to take immediately:
- Spread your cash across multiple banks. Don’t keep all your eggs in one basket. Open accounts at 2-3 different banks to mitigate the risk of any one institution failing.
- Use different brokerages for your investment accounts. The same principle applies here. Consider opening accounts with established firms like Fidelity, Schwab, and Vanguard to diversify your counterparty risk.
- Keep some physical cash on hand. As Marc colorfully puts it, “It’s like having a coffee can stuffed with cash in the cupboard and a shoebox full of cash buried in the backyard.” You never know when you might need emergency funds that you can access immediately.
Look, I know this stuff isn’t fun to think about. We all want to believe our money is safe and secure at all times. But as Marc’s story illustrates, that’s simply not the reality we live in. It’s up to you to take proactive steps to protect yourself.
To get all the details on Marc’s harrowing experience and his top tips for bulletproofing your financial life, click here to read his full article. Trust me, this is one piece you can’t afford to miss.
Stay vigilant,
The Market Monitor
