How does SIPC insurance help a small investor with a fixed portfolio that is currently down below original value?

Question

If your original portfolio was worth $500k started a year ago but the same amount of shares holdings is currently only worth $350k, does it mean you are insured at most $350k? Or all of the stock holdings in the portfolio are safely transferred free "somewhere" for you to continue holding if something like MF Global case happens?

Thanks for the clarification answers below. Now, what if my portfolio has risen to $750k in value when the broker kaput...is SIPC going to refund all of my holdings or just $500k=67% of the portfolio(the catch is "up to $500k" which is ambiguous from which point in time is it referenced to? ... because portfolio value/stock prices can increase drastically in 4 years as in MF global refund.

Answer 1

SIPC promises that the securities that you held in a failed brokerage, up to the value of $500K (of which up to $250K in cash) are returned to you.

It doesn't insure the value of the securities, it insures the securities themselves. If your shares are worth $500K today and $350K tomorrow, you cannot claim the difference from SIPC - that's your investment loss. But if you had 100 shares of Corp Inc in your brokerage account today, and zero tomorrow because the brokerage failed in some way - SIPC will figure out how to get your Corp Inc shares back to you, up to $500K value.

From the link above:

... in a liquidation, SIPC replaces the missing stocks and other securities when it is possible to do so.

The mechanics of the recovery and return of the asset will depend on the specifics of the failure, so you'll need to look for the SIPC guidance if and when the failure happens.

Answer 2

https://www.finra.org/investors/need-help/your-rights-under-sipc-protection

SIPC provides limited coverage to investors on their brokerage accounts if their brokerage firm becomes insolvent.

Your brokerage is not insolvent.

SIPC does not protect against market risk, which is the risk inherent in a fluctuating market.

Value goes up... value goes down... that's market risk.

Every brokerage website I've ever seen has text like this (which I got from chase.com) somewhere in the fine print:

Investing involves market risk, including possible loss of principal,and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results. Asset allocation/diversification does not guarantee a profit or protect against loss.

EDIT:

Or all of the stock holdings in the portfolio are safely transfered free "somewhere" for you to continue holding if something like MF Global case happens?

Yes, that's exactly what SIPC is for. If you had 1,000 shares of Chevron at Man Financial before it collapsed, you'll get your 1,000 shares back.

It might take time, though.

https://www.sipc.org/news-and-media/news-releases/20160209

Securities and commodities customers of MF Global Inc. have had all of their assets returned with the conclusion of the MF Global liquidation, the Securities Investor Protection Corporation (SIPC) announced today.

“After more than four years of recovery efforts, $8.1 billion has been returned to MF Global customers and creditors,” said SIPC President Stephen Harbeck. “I commend MF Global Trustee James W. Giddens and his staff, and Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York, who made this excellent result possible. The end of the MF Global liquidation demonstrates that the law designed to protect customers of failed brokerage firms works and works well.”