I am currently 24 and looking to start purchasing share for the long term investment of retirement saving. I am a little bit nervous about the entire process and I would hope somebody could explain a few concepts me that google doesn't seem to explain at the moment.

My first confusion is simply being scared. When I use an application to buy shares, let's say for example I used RobinHood to buy several S & P 500 index shares and later on RobinHood completely closes, the application is gone and the database backups are wiped. Where can I get proof of ownership for the shares I have purchased, or if I purchase shares using the application, where can I get external validity of my purchases. As far as I understand RobinHood is essentially a middleman for my purchases, so if they go bust and disappear, I still have ownership of the shares of the business, is this correct?

My second confusion is trying to understand SIPC. If the application you're using is essentially the middleman, they take money direction from you and immediately buy the shares for you. What exactly is the risk here, why does the insurance say they can cover 500k in theft or 250k in cash, how do I lose shares if brokerage application is the middleman that immediately purchases shares for me. Once the transaction is complete, I now own the shares and everything is done, what risk is being done here and what can I lose?

  • 3
    Don't get involved with garbage companies like robinhood. Just use any normal brandname, around-for-centuries brokerage.
    – Fattie
    Jan 29, 2021 at 13:34
  • 3
    Given that the major discount brokers have eliminated commissions, it makes no sense to trade at Robinhood where services are limited and inferior. Jan 29, 2021 at 14:42
  • You didn't say (or tag) but if you are a US citizen (and only US residents can use RobinHood) and are working you are almost certainly better off using tax-advantaged retirement plans e.g. a 401k or SIMPLE if employed, a Solo 401k or 'Keogh' if self-employed, an IRA (or two) in either case. The small differences (if any) in operating costs at different brokers for a long-term, non-speculative investment strategy are swamped by the tax benefits. The safety protections regarding the broker/custodian are the same, and the protection against creditors is better. Feb 3, 2021 at 5:44

2 Answers 2


When you buy a stock, the shares are held in street name unless you request share certificates (for a fee). Street name means that the broker's name is on the certificate but you are the beneficial owner, retaining ownership rights. Having securities held electronically in street name facilitates speedy trading and reduces trading costs.

SIPC insurance covers the custodial function of a brokerage firm as well as protection against unauthorized trading or account theft. It provides up to $500,000 in total coverage per customer for lost or missing assets of cash and/or securities. It covers up to $250k of cash. It does not protect you against loss of security value while your account is tied up. If a brokerage were to shut down, your account would get moved to another brokerage firm.

The risk here is that if your broker shuts down, you will not have access to your shares during the transfer process and you'll have market risk. SIPC does not protect you from share price loss.

  • Good to know that facilitating speedy trading and reducing trading costs facilitates speedy trading and reduces trading costs
    – user253751
    Jan 29, 2021 at 18:56
  • In the old days investors often had stock certificates. In order to sell the stock, you had to either find a local branch of your broker and drop the certificate off or you had to mail the certificate to your broker. This took time and resulted in higher costs. It also opened one up to market risk. But I suspect you were not thinking about that. Jan 29, 2021 at 19:07
  • I was pointing out the redundant wording at the end of the first paragraph
    – user253751
    Jan 29, 2021 at 19:09
  • LOL. I thought that you were being snarky, alluding to the idea that faster and less costly trading 'facilitates' more trading, something many frown upon. Note: My typoese has been fixed. Jan 29, 2021 at 19:13

The other answers explain why you can trust an SIPC-backed broker. As for being scared, what about simply printing out your brokerage statement every month? If having all the information only online is scary to you, then maybe those printouts will give you peace of mind.

Better yet, don't check the 'paperless' checkbox, and your broker (other than Robinhood which is mobile-only) should mail you your statements on nice, official-looking paper.

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