Why is there a discussion on “wartime asset allocation”?
Geopolitical tensions often have profound effects on the economy and financial markets. The relationship between Taiwan and China has long been a focal point of geopolitical concerns in the Asia-Pacific region, and even globally. Recently, a netizen posted a thread titled “Wartime Asset Allocation” on PTT’s stock forum, sharing their current asset allocation, which sparked a wide discussion among other users.
In simple terms, the core strategy of this netizen is to convert assets from New Taiwan dollars to US dollars and transfer funds to overseas accounts for international use.
The reason for the discussion about “wartime asset allocation” is that, if war truly occurs, Taiwan’s financial system will face multiple shocks, including panic-induced bank runs, causing liquidity crises and bankruptcies; a significant drop in the stock and real estate markets; a temporary sharp depreciation of the New Taiwan dollar, which might even become worthless in the event of defeat; and interruptions to the operation of financial institutions due to physical damage or cyberattacks.
These various issues could not only cause substantial assets to “evaporate” but could also make it impossible to withdraw funds from banks. To avoid such a scenario, many Taiwanese investors are beginning to consider how to diversify assets, hold hedging assets, and understand potential government responses.
Is the strategy of the PTT user effective?
The user’s strategy mainly consists of the following steps: holding an iPhone for FaceID login software, opening an IBKR account for securities trading, linking a Taiwanese bank account for quick transfers, opening a HSBC Taiwan Premier account to gain global services, opening an HSBC Singapore account as a fund safe haven, and ultimately transferring assets abroad quickly during a crisis, using a Debit Card to maintain daily living.
The author himself states that his strategy is mainly based on the idea of “ensuring assets don’t go to zero,” so he emphasizes completely online operations, bypassing SMS verification issues with FaceID technology, and avoiding bank runs in Taiwan. As for whether one should escape the country, it is not part of his considerations.
However, for the average investor, replicating this strategy presents certain challenges:
- Firstly, this strategy relies almost entirely on the operation of the internet and mobile phones. While it ensures assets remain safe abroad, it is essentially impossible to operate the assets until internet access is available.
- In the event of war, communication infrastructure is likely to be one of the primary targets, and issues like Taiwan’s Chunghwa Telecom collapsing, making it impossible to receive SMS verification codes, are only one part of the problem. Internet outages, unstable mobile signals, or even complete paralysis are all very likely scenarios. In such a case, even if one has an iPhone with FaceID, it will be impossible to log in to online platforms without an internet connection.
- Secondly, this strategy is quite time-consuming and requires “pre-completion of asset allocation.” As financial system operations will be severely affected when war breaks out, foreign exchange controls and currency depreciation are unavoidable problems, and international financial transactions may be restricted. Moreover, due to current regulations in Taiwan, converting NT dollars to US dollars requires reporting if the total amount exceeds NT$500,000 within a single day, making it difficult to quickly implement this strategy in a short period.
- Most importantly, this strategy almost entirely ignores the personal safety and mobility constraints. Asset allocation is important, but in a war-torn environment, personal safety is the top priority. Even if assets are successfully transferred abroad, if one cannot leave Taiwan safely or maintain basic living conditions, the value of these assets diminishes significantly. Therefore, this asset allocation strategy is not suitable for everyone.
Is gold a good choice?
Under this PTT discussion, many netizens argue that no matter how asset allocation is conducted, gold remains the best option.
“Gold is still the most versatile,” “We’ve discussed it to death; the answer is physical gold, what use are those bank accounts?” “Better to swap for some gold, stock up on food, hide for a few days until it’s over.”
Gold has demonstrated strong hedging properties during periods of war and geopolitical instability. Historically, gold has shown resilience during wars and conflicts, maintaining its intrinsic value even when local currencies depreciate or become worthless due to political and economic instability.
Furthermore, wars often lead to inflation caused by supply chain disruptions and increased government spending. Gold has always been an effective tool to combat inflation. As the purchasing power of fiat currencies declines, gold becomes more valuable.
One netizen pointed out that a red brick weighs about 2 kg, and based on today’s gold price, 2 kg of gold is worth approximately NT$6 million. It’s not “too heavy to move” and can ensure a considerable amount of asset security.
However, the drawback of gold lies in how to “physically store and transport” it. After all, nowadays, if you want to carry gold abroad during peacetime, any amount exceeding US$20,000 must be declared to customs. During wartime, there could be even stricter restrictions. Additionally, carrying such a large amount of gold while fleeing during wartime may also expose one to the risk of robbery.
Is cryptocurrency a good option?
In addition to gold, some netizens enthusiastically recommend cryptocurrencies, stating “Cold wallets are good too,” “I’ll go with cryptocurrency,” “I have FT and Crypto.com cards, living freely abroad.”
When war breaks out, cryptocurrencies could indeed have potential advantages as a wartime asset allocation option, but they also come with certain risks and challenges that cannot be ignored.
Potential advantages of cryptocurrency as a wartime asset allocation:
- Decentralization and borderless nature: Cryptocurrencies are not reliant on any central government or financial institution for issuance and management, which theoretically reduces the risk of a collapse in a single country or region’s financial system. Their borderless nature makes cross-border asset transfers a potential alternative when traditional financial channels are blocked.
- Portability and concealability: Compared to physical assets like real estate or gold, cryptocurrencies exist in digital form, making them easy to carry and hide. This is an important advantage in emergency evacuation situations or to prevent assets from being seized.
- Potential value storage: In times of severe depreciation or hyperinflation of fiat currencies, some believe cryptocurrencies could serve as a store of value, although their price volatility is significant.
- Bypassing traditional financial systems: In cases where banks are closed or international remittances are blocked due to war, cryptocurrency transactions could serve as an alternative for maintaining economic activity and making payments.
Challenges and risks of cryptocurrency as a wartime asset allocation:
- Dependence on internet and power infrastructure: Cryptocurrency transactions and management are heavily reliant on internet and power supply. During wartime, these infrastructures are likely to be destroyed, and if interrupted, cryptocurrencies will be unusable. This is similar to the risks faced by smartphones and online trading systems mentioned earlier.
- Security risks: The security of cryptocurrencies relies on the protection of private keys. During the chaos of war, the risk of losing, stealing, or being hacked increases significantly.
- Price volatility: Cryptocurrency prices are already highly volatile, and this uncertainty may worsen during wartime, reducing its reliability as a store of value.
- Acceptance and liquidity issues: Although the popularity of cryptocurrencies is increasing, in extreme situations like war, there may be questions about whether businesses and individuals would accept cryptocurrency as a payment method. Its liquidity could also decrease significantly due to market panic.
- Technical barriers: Using cryptocurrencies requires a certain level of technical knowledge and operational ability. For those unfamiliar with them, learning and using cryptocurrencies in an emergency could be very difficult.
What does AI recommend?
“If war breaks out, how should Taiwanese people prepare for wartime asset allocation?” Facing this challenging question, AI software Gemini provides the following recommendations:
- Recommendation 1: Cash buffer reserve for daily use: Establishing an easily accessible cash buffer reserve in a separate bank account is a basic and prudent step to protect financial assets during uncertain times (e.g., potential war). This cash reserve should be sufficient to cover several months of basic living expenses, providing a financial safety net in case income is interrupted or other funds are inaccessible.
- Recommendation 2: Open overseas accounts: Opening a second bank account in a neutral and financially stable country can provide a secure place for funds and ensure that assets can be accessed even if the domestic financial system is disrupted or restricted. For individuals holding gold and silver, consider using secure and cautious storage facilities abroad (e.g., in Switzerland or Singapore, known for their stability and financial security) to further mitigate risks related to domestic instability or potential asset freezes.
- Recommendation 3: Understand Taiwan’s asset transfer regulations: Taiwanese residents must thoroughly understand and strictly comply with regulations regarding holding and transferring foreign currency. This includes the requirement to declare when carrying over the equivalent of US$10,000 in cash when leaving Taiwan, and obtaining prior approval from the Central Bank of Taiwan for foreign exchange transactions exceeding certain amounts.
- Recommendation 4: Develop a financial plan: Developing a comprehensive and well-documented financial plan that addresses potential conflict scenarios is a key step in protecting personal assets. Seeking guidance from experienced financial advisors specializing in international investments and geopolitical risks can provide tailored advice and support for making wise decisions about asset allocation, risk management, and long-term financial security.
- Recommendation 5: Carefully review insurance policies: Taiwanese residents should carefully review their existing insurance policies to determine coverage in the event of war or armed conflict. While comprehensive personal war risk insurance policies may be limited in terms of availability or scope, understanding potential options may provide additional financial protection against certain types of losses.
In any case, when facing extreme risks like war, in addition to asset allocation, more comprehensive considerations should include personal safety planning, emergency supply preparation, and more diversified asset holdings, such as appropriately allocating physical precious metals, and even considering broader asset allocations across different countries or regions.
Of course, we all hope for lasting peace and that war will never happen. However, by considering and planning ahead for extreme risks, we are undoubtedly taking responsible steps for ourselves.