We often think that living in the first-world and having all of the benefits that first-world technologies offer, that somehow, we have it all figured out (or most of it, at least).
How often we take for granted the fact that with every new advancement comes a negative.
Remember, the invention of the airplane was also the invention of the airplane crash.
Similarly, the invention of digitized cash for the sake of speed and efficiency is also the invention of its potential disappearance as a private and real asset.
Interestingly, this “disappearance” metaphor took a literal turn when, on the morning of Wednesday, February 18, Fidelity Investments clients logged in to their 401(k) portals to see that they had a net balance of $0.
Twitter lit up with complaints. Let’s take a look at a few of the complaints, not just to get a sense of these customers’ angst, fear, and shock, but to dig deeper into the implications of their fears and suspicions.
- “@Fidelity decided my accounts don't exist this morning, anyone else?? pic.twitter.com/n81eXGvOXc” — Not Bill Gross (@debtinstruments) February 19, 2020
Okay, Fidelity can’t just one day decide that your account no longer exists. But is it possible that an institution can have such control over your electronic account so as to manipulate your funds, add charges (hint: Wells Fargo), or tax or confiscate?
If your funds can be manipulated with a few keystrokes, wouldn’t you agree that your money might be just a bit too exposed and vulnerable?
- I saw my @Fidelity account and almost had a heart attack. The balance was $0. I just learned there website is down. — Guy Spann (@GuySpann) February 19, 2020
When the “reality” of your account balance relies on online systems that, in turn, rely on other online systems, then what might it take for the digital dominoes to fall against you, wiping out your entire balance?
In contrast, if my bank’s online system crashes, I can at least trust that the cash in my wallet and the gold and silver in my private storage are still there.
- Could you imagine if you went to bed last night with $1,000,000+ in your Fidelity accounts and woke up this morning to a total account balance of $0.00 with all Fidelity customer support methods down? So scary! I have brokerage accounts at 20 different firms for this reason. — Adam Tatusko (@adamtatusko) February 19, 2020
This client seems to get it. He’s diversifying his banking risk by holding multiple accounts. Needless to say, his million-plus in paper assets are still digital zeros and ones. Not a complete hedge, but it’s a start.
There wasn’t much of a response on Fidelity’s end, nothing more than what you’d expect, that is.
”We are experiencing website difficulties.” Yes, I think the people who saw their balances at $0 probably figured that out the moment they saw their balances at $0.
“Try logging back in, and if the problem persists, please try again later.” It’s like saying, check to see if your money is there, and if it isn’t, check again later to see if your money is there.
A side thought: when it comes to assuring clients whose lifelong savings had been wiped out, is there really anything better to say than to try again later?
With 30 Million clients, 29.6 Million accounts, $7.8 Trillion on client funds, and $1.5 Trillion in retirement accounts, there’s a lot of trust in Fidelity’s ability not to screw up clients’ funds with a mere technology-based error.
And last Wednesday’s disappearing act gave you a glimpse of Fidelity’s “performance.”
By the way, Fidelity’s little mishap is indicative of what can happen with any brokerage, bank, or financial institution.
That is unless you or they are holding “physical assets.”
A Black Swan Rehearsal
There are many unpredictable risks to holding digitized money. It may be convenient, fast, and it may have the ability to digitally teleport from one institution to another (even one country to another) at, or near, the speed of light.
But it can also disappear, be manipulated, remain inaccessible, or fall under institutional surveillance. And we’re still talking about the supposed “good actors” (not the bad ones, the hackers).
What we saw Wednesday morning was a minor Black Swan event. It wasn’t catastrophic, so in a way, it wasn’t a Black Swan.
If you’re not familiar with this term--and really, you should be by now--A Black Swan is a metaphor for an unpredictable event that has a potentially catastrophic impact, and that is always explained away rationally after the fact.
Black Swans are random. You can’t see them coming. The only time you can see them coming is after the fact when you piece together possible indicators and say “we could have seen this coming.”
But in actuality, you can never see it coming...that is if it's a true Black Swan.
Black Swan events have occurred throughout history, in every domain, and they will continue to occur.
Case in point: the current coronavirus epidemic--something of a Black Swan.
The trick, however, is not to predict them (which you can’t) but to hedge against their impact.
Avoiding a Black Swan is much easier than predicting one. When it comes to your wealth, it's just a matter of holding some physical assets--safe havens like gold and silver coins or bullion.
If you diversify your portfolio into a reasonable apportioning of physical precious metals, then part of your wealth will always be immune to the adverse effects of such an event.
Should electronic infrastructure go down, or should digitized funds be subject to monitoring or manipulation (legally or illicitly), your sound money 1) will still be there, 2) will still remain private, and 3) will still be yours, and yours only to access, use, and save.