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15

I'm of the belief that, long term, fees eat away at your performance. If you chose an ETF, say VOO, with its .03% expense, and a short term bond fund or money market fund, you are going be ahead, long term. It's pretty much accepted fact that money managers are not beating the average long term. For you to simply do as well as I do (S&P less .02%) ...


13

ETFs are legally separate from their issuer, so the money invested should (the lines can get blurry in a massive crisis) be inaccessible to any bankruptcy claims. The funds assets (its shares in S&P500 companies) are held by a custodian who also keeps these assets separate from their own book. That said, if no other institution takes over the SPY funds ...


9

Your money is likely not insured as the SIPC said that the accounts they insure are not meant to hold cash strictly for savings. Cash balances sitting in accounts collecting interest for a long period of time also skirt the SIPC rules on what's covered in the event of a collapse, Harbeck said. It may fall under the category of a loan because the brokerage ...


9

Larry Kotlikoff, who wrote the two 2014 articles that you referenced, uses very strong rhetoric in describing the SIPC: "terrible risk," "financial fraud," and "bigger scam than Madoff." He advises you to "close your brokerage account," and "avoid spending any withdrawals" for six years, presumably the amount of time that the SIPC could confiscate those ...


9

There is a subtle difference. In an FDIC insured bank account, you are guaranteed to get all of your money back out. If you put $1000 into your bank account, you are guaranteed to be able to get at least $1000 back out when you want. The value of the account (in dollars) can never go down, for any reason. When you put money into a brokerage account, cash ...


7

Here is my perception of the situation, obtained from reading Degiro's Client Agreement. If Degiro shuts down, it will notify you about the fact at least one month in advance, and you will have enough time to order a transfer of your positions to a different broker. If Degiro shuts down unexpectedly, your assets will remain to be held at SPV, a separate ...


7

Brokerages are supposed to keep your money separate from theirs. So, even if they fail as a company, your money and investments are still there, and can be transferred to another brokerage. It doesn't matter if it's an IRA or taxable account. Of course, as is the case with MF Global, if illegally take their client's money (i.e., steal), it may be a ...


6

As per the SIPC website: Most customers can expect to receive their property in one to three months. When the records of the brokerage firm are accurate, deliveries of some securities and cash to customers may begin shortly after the trustee receives the completed claim forms from customers, or even earlier if the trustee can transfer customer ...


5

SIPC is a corporation - a legal entity separate from its owners. In the case of SIPC, it is funded through the fees paid by its members. All the US brokers are required to be members and to contribute to SIPC funds. Can it go bankrupt? Of course. Any legal entity can go bankrupt. A person can go bankrupt. A country can go bankrupt. And so can anything in ...


5

There's some risk, but it's quite small: Legally, you own the assets inside the account. The brokerage firm just manages them. Just as you don't lose your investment property if the company you've hired to collect the rent goes bust, you still legally own the assets you've invested in even if the company managing them goes under. For the money in cash ...


5

You have received much good advice, but based on 53 years investing and the first 25 getting my nose bloodied and breaking even I very strongly offer the following. Before doing so let me first offer this caveat: I am not questioning your broker or the advice, but it is only valuable to you if history proves correct. No one, not even Bernanke can predict ...


4

Obviously the news has fleshed out a little bit but it might be worth simply examining things from a high level. When you send $100 to your bank, it goes in your bank's balance sheet and the bank issues an IOU for $100. Your bank then lends part of your $100 or does whatever with that money up to the regulatory limits of what it's allowed to do with that ...


4

Presumably you mean to ask what happens if State Street files chapter 7 bankruptcy, since not all bankruptcy proceedings end in liquidation. SPY is a well known ticker, I can't imagine that there wouldn't be an eager bank willing to pay to pick up that ticker and immediately acquire all the assets related to it. The most likely scenario is that another ...


4

Yes, any company can go under. SIPC offers a level of protection. They don't guarantee against stocks dropping, but will replace stocks that you owned, but the broker stole from you. (overgeneralization). There's a $500K limit, with $250K max in cash.


3

I'll give it a shot, even though you don't seem to be responding to my comment. SIPC insures against fraud or abuse of its members. If you purchased a stock through a SIPC member broker and it was held in trust by a SIPC member, you're covered by its protection. Where you purchased the stock - doesn't matter. There are however things SIPC doesn't cover. ...


3

If firm failure occurs along with this theft, then small investors will be covered up to an extend. This is evident in https://en.wikipedia.org/wiki/Madoff_investment_scandal where his firm did not do purchasing the securities, but gave false statements. As such there is no direct mechanism where small investors are safe from brokerage stealing. This ...


2

While you want it to grow faster than inflation, there are things like I-bonds that can carry some inflation protection with them for an idea that may make sense for part of this. There are now some more details and I'd think this seems alright initially though I would suggest considering having some kind of on-going plan to handle periodically seeing how ...


2

Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund? SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. ...


2

You are asking about what happens when an ETF/mutual fund company goes bankrupt. If you were asking about a bank account you would be asking about FDIC coverage. Investment funds are different, the closest thing to FDIC protection is provided by Securities Investors Protection Corporation (SIPC) SIPC was created under the Securities Investor Protection ...


2

The only way for a mutual fund to default is if it inflated the NAV. I.e.: it reports that its investments worth more than they really are. Then, in case of a run on the fund, it may end up defaulting since it won't have the money to redeem shares at the NAV it published. When does it happen? When the fund is mismanaged or is a scam. This happened, for ...


2

For cash, SIPC insurance is similar to FDIC insurance. Your losses are not covered, but you're covered in case of fraud. Since your cash is supposed to be in a trust account and not commingled with brokerage's funds, in case of bankruptcy you would still have your cash unless there was fraud.


2

If you are using a US broker, you are protected by SIPC up to $500,000. SIPC also oversees the liquidation of the broker itself, either by appointing a trustee, or by directly contacting clients. If they are able to transfer accounts to a healthy broker before bankruptcy, they will do so, but if not, you will need to file a claim with them.


1

You asked: "So question is if a brokerage does that kind of fraud, will the investor be covered if he/she can show the proof that the security was purchased per the brokerage statement?" The answer is no, the SIPC would only become involved if the firm becomes insolvent. The SIPC protects against the failure of an investment firm, not fraud by an employee ...


1

While you are correct that no broker-dealer ever qualifies for FDIC and it could be sufficient for customers to know that general rule, for broker-dealers located at or 'networked' with a bank -- and nowadays many probably most are -- these explicit statements that non-bank investments are not guaranteed by the bank or FDIC and may lose principal (often ...


1

+1 to YosefWeiner. Let me add: Legally, technically, or at least theoretically, when you buy stock through a broker, you own the stock, not the broker. The broker is just holding it for you. If the broker goes bankrupt, that has nothing to do with the value of your stock. That said, if the broker fails to transfer your shares to another broker before ...


1

You should ensure that your broker is a member of the Securities Investor Protection Corporation (SIPC). SIPC protects the cash and securities in your brokerage account much like the Federal Deposit Insurance Corporation (FDIC) protects bank deposits. Securities are protected with a limit of $500,000 USD. Cash is protected with a limit of $250,000 USD. It ...


1

I use two different brokerages, both well-known. I got a bit spooked during the financial crisis and didn't want to have all my eggs in one basket. The SIPC limits weren't so much a factor. At the time, I was more worried about the hassle of dealing with a Lehman-style meltdown. If one were to fail, the misery of waiting and filing and dealing with SIPC ...


1

I believe the answer here is no: SIPC protection of customers with multiple accounts is determined by "separate capacity." Each separate capacity is protected up to $500,000 for securities and cash (including a $250,000 limit for cash only). Accounts held in the same capacity are combined for purposes of the SIPC protection limits. So even having 2 ...


1

There are very strict regulations that requires the assets which a fund buys on behalf of its investors to be kept completely separate from the fund's own assets (which it uses to pay its expenses), except for the published fees. Funds are typically audited regularly to ensure this is the case. So the only way in which a default of the fund could cause a ...


1

I have received a response from SIPC, confirming littleadv's answer: For a brief background, the protections available under the Securities Investor Protection Act ("SIPA"), are only available in the context of a liquidation proceeding of a SIPC member broker-dealer and relate to the "custody" of securities and related cash at the SIPC member ...


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