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In order to make the calculation 'correctly', don't forget to price in the correct amount of risk. As an example, say there is a 0.2% chance in any given year o
by WJW 7y ago
In order to make the calculation 'correctly', don't forget to price in the correct amount of risk. As an example, say there is a 0.2% chance in any given year of your house catching fire, either through your own fault or from a neighboring property on fire. If there is a 50% chance of you being able to rescue the money in such a situation, then that is an estimated 0.1% loss in any given year. There is also a similarly priceable risk for theft etc, which would probably increase with the amount stored. If it becomes known that there is 500k in cash stored in your house, there are probably plenty of people greedy or desperate enough to break in with heavy tooling when you're out and steal the whole safe.
- solaxun 7y agoWell, while we're in the realm of discussing tail risks - what is the risk that if your assets exceed FDIC insurance limits, the bank you have them in defaults? Since we're discussing a negative rate environment, presumably this is a stressful time for the economy making this more likely than history would indicate. If you have your assets at multiple institutions to stay under the limits, what's the probability of one of those failing, and what's the probability the FDIC fails? Depending on how negative rates are, the math can quickly turn those probabilities you outlined above into risks I'm willing to take.