Nov 15, 2022
Dollar Worries: Even the World’s Wealthiest Have Them
Jeff D. Opdyke, financial writer, global investment expert for International Living, with 30 years’ experience, and author of 10 books on investment and personal finance.
For most of the world’s citizens, the questions above are moot. Few will ever confront such a ‘problem’. But for a tiny fraction of the planet — 25,490 people, to be exact — those questions resonate. These elite individuals are the world’s ‘centi-millionaires’, the people who hold at least USD 100 million in investable assets.
At that level, money becomes irrelevant simply because anyone with such an accessible sum would rarely ever need to think about the cost of anything. Then again, that level of wealth presents its own level of stress, since one must ensure that the money is properly managed for today’s need, tomorrow’s lifestyle maintenance, and future generations’ wellbeing.
Here’s the secret to wealth that size: Managing it is not terribly different from managing a much smaller nest egg. Certain facts define investment prudence whether you’re investing USD 100,000 or USD 100 million. The primary pursuit of prudence centers on diversification. By that, I don’t mean owing stocks, bonds, cash, and real estate. While that is certainly a necessity, it’s a much-too-basic approach.
Moreover, it misses what might just be the most important take on diversity at this point in the global economy: sovereign diversity.
According to Henley & Partners and New World Wealth’s research, about 40% of the world’s centi-millionaires are based in the US. It’s likely that most (if not all) of their financial lives are tied to the US dollar, the US government, the US legal system, the US financial system, and the US central bank, the Federal Reserve. Those ties include income sources, homes, retirement accounts, life insurance, and banking and investing accounts — pretty much the entirety of their financial existence.
There was a time when that approach might not have been seen as much of a risk, given the long-standing stability of each of those American entities. Today, however, those entities each represent a heightened level of risk to which even centi-millionaires must pay attention.
For instance, political discourse in the US is arguably as divisive as it has been since the 1860s, prior to the American Civil War. A new UN report from the summer of 2022 now ranks the US as a “flawed democracy,” placing the country in the 41st slot worldwide — down from 32nd last year, and sandwiched between Cuba and Bulgaria. That ranking is ‘developing nation’ status, meaning the American form of government is actually devolving.
Also consider US national debt, now approaching USD 31 trillion. That’s a number nearly impossible to fathom because it’s so large. Think about it this way: If you spent USD 1 million per day every day from the day you were born until the day you died at age 100, you would need to live 822 lifetimes to spend USD 31 trillion. It’s a number far too large to ever repay.
Contemplating the US dollar’s collapse seems almost laughable, given the last 70-plus years of dollar hegemony. But in an era where currencies are burdened by their debts and the economic weaknesses of the countries they represent, it doesn’t take much to undermine the status quo. Just look at the British pound. In the span of less than two months, it lost nearly 30% of its value relative to the dollar. That’s a major Western currency. The same can easily happen to the dollar.
The risk in these facts is simply that a guardrail could give way and the world’s premiere democracy and economy could face an existential crisis that raises global concerns about the stability of the government and, thus, the US dollar.
If such a moment emerged, dollar-based assets would collapse. The greater risk is that such an event would see the US dollar lose reserve currency status. Either possibility would wipe out vast sums of dollar-denominated wealth, even for centi-millionaires.
The flipside is that assets that are foreign-currency-denominated would necessarily rise, since currencies move in pairs and in opposite directions of each other. For that reason, one of the most prudent moves for even the world’s wealthiest people is to purposefully move a meaningful portion of their wealth into other currencies, if only as a form of financial insurance.
Of course, most of the world’s fiat currencies have their own set of challenges, and many of the economies they back are plagued by excessive debt. That said, currencies such as the Swiss franc, the Norwegian krone, and the Singaporean dollar are among the very best managed currencies in the world today and represent solid diversification destinations to protect wealth. Each is too small to become a reserve currency like the US dollar, but they’re large enough for the investment diversification needs of the wealthiest investors.
At the end of the day, centi-millionaires have the same issue all investors face. They just have more wealth to protect. And a basic tenet of wealth preservation in the 21st century, regardless of wallet size, is diversifying away from the risk of having most or all of one’s assets exposed to a single currency, a single government, and a single legal, taxation, and financial system.
Only then can even the world’s centi-millionaires know that their wealth is truly diversified.
This essay was first published in the Henley & Partners Centi-Millionaire Report. You can download the full report here.
