Built Like A Bank

Building your personal financial holdings is akin to building a castle. It is important to build it in the right order and with the proper structure. If you skip steps in the process, your castle can be at risk. How does one know if they are building their castle correctly? The most common advice I hear from financial professionals is to diversify your investment portfolio. What’s missing in that sentence? What about the rest of your financial life? Investments make up only one part of your financial life. There are many other aspects that should be considered.

Not long ago, I found myself waiting in a local airport, and I heard a financial commentator on TV discussing the importance of diversifying an investment portfolio. He and his guest bantered back and forth about which diversification strategy was better. Both made what sounded like viable points but there was no clear answer. This seems to be the case most of the time. One financial “guru” says one thing and another contradicts them and puts forth an alternate diversification scheme. How do you know which way is correct? That’s when I thought, why not examine the structure of the companies with the largest asset holdings and evaluate how they diversify their assets. So what companies have the largest asset holdings and easily attained records? Banks of course.

Have you ever noticed that the largest buildings in most cities have the name of a bank on the side? I have traveled to cities across America and around the world and in every case, the banks occupy the largest buildings. This is not meant to be an in depth study of the asset structure of banks in America so I decided to zero in on one of the top 4 banks in terms of asset value. I chose Wells Fargo Bank which, according the Wells Fargo annual Shareholders report, the bank has 1.4 Trillion in assets as of fiscal year 2012. That’s $1,400,000,000,000 with a T.

Before I outline some of the key details of Wells Fargo’s balance sheet, let me give you a brief synopsis of how I help my clients build their financial castles. The financial world can be complicated and is filled with many potential pitfalls. That’s why I take my valued clients through a specific process using an econometric model to test, measure and verify financial decisions. Rather than rely on sales hype or the advice of someone on TV, I utilize the most sophisticated financial modeling system that I’ve ever encountered. This coupled with sound economic principles helps my clients stay on track to reach their goals.

Steps to build a strong financial castle:
1. Maximize protection such as liability, income and life insurance
2. Set a goal to save 15% of gross income in liquid accounts
3. Work towards building liquid savings equal to 50% of gross income
Below are some of the items that jumped out at me from the Wells Fargo’s balance sheet I will use round numbers so that I don’t hurt myself keeping track!

· Total Assets – $1.4 Trillion
· Total Revenue – $86.1 Billion
· Liquid Assets – $256,000,000,000
· Cash Value Life Insurance – $18,649,000,000
· 217,652,000,000 – Securities (Stocks)
· 10,663,000,000 – Real Estate (Bank Buildings & Other Real Estate)

After learning how large Wells Fargo really is, I expected their balance sheet to contain a mix of investments and savings but one thing caught my eye immediately. Wells Fargo holds more money inside life insurance assets than they do in real estate. Not a little more but 8 Billion more. This leads me to a point that has bugged me for years. Financial entertainers like Dave Ramsey & Suze Orman routinely tell their audience that whole life insurance is a terrible place to put money. For example, according to Dave Ramsey, “Cash value life insurance is one of the worst financial products available”. If Dave Ramsey is right, does that mean that Wells Fargo’s financial team are a bunch of morons?

I find it funny that some well known financial entertainers say that cash value life insurance is the worst place to put money and yet, one of the world’s largest banks obviously understands how cash value life insurance can help them achieve their financial objectives. Who’s right? Would you put your money on the 161 year old bank with 1.4 trillion in assets or the unlicensed and unregulated financial entertainer.

Wells Fargo clearly understands the importance of cash value life insurance and they use it strategically to help them meet their financial objectives. They also understand the need for liquid and safe assets as a vital foundation for their financial castle. Certainly, Wells also owns significant market driven investments, but it is the balanced approach that is noteworthy. Wells does not attempt to take a singular approach. They see the benefits of and the interplay between different types of assets in carefully crafted and methodical approach to managing its great wealth.

Wells Fargo has been in business for over 161 years. They clearly understand that great castles cannot stand the test of time without a strong foundation. Most people only get one chance to build their financial castle. Rather than listen to sales hype or to an unlicensed financial entertainer, make sure that you understand how different financial instruments work and more importantly how they can work together to help build your financial future.

Kraig Strom, CFP®, ChFC® is a Certified Financial Planner® and owner of WealthyCastle.com. He can be reached at 877-297-5851 or www.WealthyCastle.com.