Banks are primarily a preserver of wealth.
Banks are primarily a preserver of wealth.
And I make no bones now, telling you the saver, that the bank should really be used primarily as a preserver of wealth. Not a builder of your portfolio. Generally, banks are not primarily set up as a wealth creator. And I’ll tell you why.
The industry is based on a series of investible products, but it requires huge numbers of participants. It requires the herd mentality of savers to want to invest to agree to buy those products, in sufficient quantity for the market in those products to remain liquid.
So, if you try to game the market by yourself, you stand a great chance of losing it all. You then want to rely on the best expertise you can find. Unfortunately, you are familiar with your own bank but the banks are not the actual expertise who are actually investing your money – you are! So you simply use your bank simply because you are familiar with them. But really, you have a certain amount of money only when you have it in a safe product like Government bonds or savings accounts (make sure the savings are kept below the FDIC threshold to be insured).
Time to dispel the Banking and even the now fashionable Private Banking as great places to invest.
What’s been “sold” to the public private banking industry wide, is that you are building wealth when you save and “invest” your money in a variety of investment products that your bank offers you. These are all based on the offers of the financial industry as a whole.
But first, let me make it clear that there are some private banks of long standing that are truly excellent managers of your investment.It is the tradition on which they have been built. Those that I have concerns with are the newly created ones which are simple taking advantage of the market flux of cash worldwide looking for a home. Also, the problems of the so called “offshore banking” demise has many people seeking other private banking services closer to home. But perhaps the biggest target of all are the people who have been disenfranchised with the market conditions and are simply looking for a higher standard of service than regular banks can offer.
I have had great experience with the traditional and long standing private banking but the new ones are really there to capture market share. But I can really say that the standards adhered to b the newly created private banking industry )mostly from the large retail banks) are most certainly not what I would consider acceptable. But private banking carries the connotation of far more secure and a higher standard of service. Customers will pay more for that percieved better service. What a way to raise more service fees.
And how do they do the banks have such a market?
Very simple – you’ve complained bitterly about for long enough. The savings accounts (and nearly all checking accounts) get such a tiny interest return you wonder why you can’t build wealth. It’ll take a hundred fifty years just to double your money in many cases. And you know the result on inflation on your money. It is this source of cash that you are being forced to invest to get higher returns. Lo and behold! The bank magically has many variable products to cater t0 the investor – YOU.
Why do they offer you investments outside of their bank?
- It immediately moves your money from their responsibility of paying FDIC or banking insurance where the government guarantees your money up to a certain amount.
- The bank immediately becomes the “manager” of your money invested. They can then earn a percentage of the transaction. Remember, they only need to make a very tiny amount of hundreds of millions to make several million dollars.
- If you lose money, it is your responsibility – remember the fine print waiver you signed? If you make money the bank make claims of their own great performance.
Now you understand why the bank officers are constantly offering you something to invest in for your RRSP, RESP, Mutual Funds, Government T-bills and Bonds…
The Bank two step to avoid recriminations when the market tanks.
It all seem to go very well for those that invest in the mutual funds for some years until the big crash comes and set you off on a panicky “What do I do Now?” You ask your bank officer who tells you to hang in there as this is only a market correction. Some people have actually lost the major portion of their investment. Now, if this bank officer was a stock broking company or fund managers as they are now called, there would have been great hue and cry and investigations of mismangement will ensue. The banks seem immune to such reparations only because they do not claim to invest your funds for you but through a third party. Therefore, the parties that are primarily named are you and the investment fund company.
Bankers also know that people will seek banking for their daily financial needs and there fore will become prime targets for investment products repeatedly. So, people with some saved up cash will start to look for higher returns than in their savings and even in the Gov. T-bills and Bonds and may look to their bank officer again and still buy into the insanity of doing it over and over again.
Do better with the real thing
You do far better to research your options well. Put your money in the right places which offer you the right services for your money. To save, use a proper savings account. To invest, invest with the services of true exerienced investment specialists, to have great money managers, use the right organization like a true and traditional private bank. You’ll be far more satisfied with what you will get in return.
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Hedge funds are not all they are made out to be, Piet Viljoen says. Over the past year, when markets tumbled and hedge funds were supposed to protect investors from the downside, they under-performed balanced unit trust funds by 5.1 percent for the year, he says.