Gyroscopic Investing

I haven't seen this addressed before, and I was curious to get the opinions of the more knowledgeable voices on here. It seems for the gold aspect of the PP, there are several benefits which are always mentioned when holding physical gold, (where you actually take possession, such as in your safe.) The first is that there is no counterparty risk, such as with investments held at a brokerage. One other benefit, which I haven't heard as much about is that, technically, the investment is out of the reach of creditors. This means, if you got sued for everything you had, or got divorced (assuming your spouse wasn't aware of it), these physical holdings would be immune from confiscation. I do realize that legally, you are required to list your assets when you get sued, however if something is not listed on paper, and I feel I am being sued unfairly (somebody "slips" on my property and wins a million dollars, etc) there is no way I am going to voluntarily list those assets, they can go pound sand. Obviously, with the divorce situation, there are some moral issues, but lets put that aside for now and assume your wife cheated on you and is unfairly divorcing you, and has a great lawyer that is trying to take everything you have.

Anyway, my question is, can't the same "physical holdings" thing be done with cash, as in keeping $100 bills in your safe? This would ensure that a full 50% of your investments are completely under your control, free from both counterparty AND creditor risk. This seems like a huge benefit of the PP that is never mentioned. Now, I realize that in years past (esp. the majority of the time HB was investing) that cash gave relatively high returns, and keeping cash in actual cash would be a losing strategy. But right now, cash "investments" are making next to nothing, and for me, giving away the fraction of a percent per year is worth the insurance of knowing my funds are safe from any creditors, etc and a full 50% of my investments are completely under my control. In the future, when cash investments start paying, say, over 3%, and/or inflation starts taking off, that will probably change.

Also, lets assume you have a safe place to store the cash, that for all intents and purposes, it is safe from fire and burglary. What do you guys think about this?

I think this is a very sensible idea. With cash returning less than the expense ratio on short-term bond funds, you could actually gain compared to holding something like SHV. What a crazy world we live in.

I hold some physical greenbacks in a safe myself and I've been considering increasing the amount.

I think it's the best way to keep cash right now provided it's not a super huge amount that would be catastrophic if you were robbed. And you can reasonably keep it safe.

I think it's a good idea to have a few months worth of living expenses in cash but I wouldn't go too far. Some issues:

1) Interest rates are near zero right now. If/when they rise, you'll want to move the cash back into T-Bills. Due to the Patriot Act and The War Against Drugs, it's a challenge to move $50,000 worth of cash from your home safe back into a brokerage account. If you're only talking a few thousand dollars then it really doesn't matter you do with it because whatever happens to a few thousand dollars, even if it burns in your house, isn't a big deal one way or another.

2) The cash portion of your assets are in place to rebalance the other positions in the event of something disastrous. If the stock market plunges 50%, you'll want to buy more stocks. However if you have to deposit the $50k cash into your bank, get a check to mail to your brokerage, wait 10 business days for the check to clear, then make the stock trade, you may have missed out on the rebalancing opportunity. Thus, at a bare minimum, I'd want a minimum of 50% of your cash PP money held in an actual brokerage, that's locked and loaded to buy an asset that crashes.

3) If anyone finds out what you have, you may be targeted for a home invasion.

I like to keep at least enough cash (small bills) to pay for a few nights in a hotel, a couple of sets of clothing and travel expenses (bus/plane ticket(s), or a rental car and gas, or ? ? ? ) to meet up with extended family.

Currently, as others have pointed out, there is little lost opportunity cost in keeping cash with today's rates, so that isn't a reason not to keep plenty on hand.

There is no problem putting money back into the banking system, if you took it out of the banking system AND KEPT YOUR RECEIPT(S).  At least, I've never had a problem and I've done it a few times in the past 10 years.  Usually the questions start about $5,000 and with a receipt or two in the original bank envelope(s) for them to attach to and to fill out their forms, that's the end of it.  I've deposited $1000-$3000 a few times (sold an old truck, needed to raid my stash at home to get money into the bank to make a payment to somewhere that c/wouldn't take cash, etc) with no questions at all.

But you may not want to put it back into the banking system...

Cash speaks.  When you have cash on hand, it becomes much easier to pick up local deals on gold and/or silver (or guns and ammo or ...) if someone has low-premium stock available.  And if their alternative is to ship it to somewhere else, sometimes those premiums become negotiable.  Of course, those deals are likely going to be $5-10,000 or more, depending on the size of the dealer.

Of course, if you are one of those people for whom cash just runs thru your fingers, better keep it in the bank (other than the 'get out of Dodge' amount I first mentioned).

It has been a while, but WildAboutHarry brought it up in September.
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