build your financial horcrux

In J. K. Rowling’s Harry Potter books a Horcrux is described as a “receptacle in which a Dark wizard has hidden a part of his soul for the purposes of attaining immortality.” With part of a wizard’s soul stored away like this, as long as the Horcrux is intact the wizard will remain alive, and therefore is immortal. Even if the wizard’s body is “killed”, part of his soul will remain preserved inside the Horcrux. In other words, an evil wizard squirrels away bits of his soul in various trinkets so he can’t be killed totally. Nice trick.

Here is my personal finance Horcrux: keep your “financial soul” hidden away in several Horcruxes, so that you can never be completely “killed.” A good example of this was the recent collapse of NetBank. Individuals (and companies) who kept their money in NetBank had their deposits insured up to a limit of $100,000 by the FDIC. While I doubt many people kept more than $100,000 in NetBank, I am sure there were a few. By keeping too much of their monetary “soul” in one Horcrux, they are exposed unnecessarily to risk.

Another example of this would to be to diversify your investments. Make sure that you don’t have too much stashed away in one Horcrux. Make sure you don’t have too much stashed in one stock – or make sure you don’t have too much put away in US stocks versus overseas stocks, bonds, etc. If you have every single investment in your account invested in US equities, your “financial soul” is at risk of being snuffed faster than you can say “Hufflepuff.”

I have written elsewhere about simplifying and consolidating your accounts but I would never advise carrying this to its penultimate conclusion – a single institution holding all of your financial life. It is possible. I could consolidate every single bit of money in my life in Bank of America for example: cash, securities, IRAs, mortgage and credit cards. The only thing I could not easily consolidate would be my 401(k).

So if you have plans to conquer the world, and you’re trying to avoid meddling wizards seeking to overthrow you, make sure you have your (financial) Horcruxes safely stashed away!

Photo credit: by Jersey JJ