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All the eggs in one basket?
Old 03-13-2011, 11:11 PM   #1
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All the eggs in one basket?

Someone had posted in another thread that they wouldn't keep all their money in one management company (Vanguard) because no one is too big to fail.
Should I spread out our money into 3 different companies (Vanguard, T. Rowe Price, Fidelity)?

Seems like a lot of work.

How many companies do you spread your money across? How much would be too much to keep in one (if you have $5 million would you keep it all in Charles Schwab)?

Just curious.
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Old 03-13-2011, 11:14 PM   #2
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Quote:
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(if you have $5 million would you keep it all in Charles Schwab)?
Yes
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Old 03-14-2011, 12:44 AM   #3
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One, as in Vanguard. The way I look at it...the chances favor Vanguard being around when I'm gone
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Old 03-14-2011, 01:12 AM   #4
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I ask myself the same question often. DW and I currently have around 20 different accounts in about 14 different places...mostly legacy accounts from old jobs. Too many by a lot, I know. I think the optimum might be to consolidate down to a half dozen or so, including a couple of credit unions, Vanguard, Schwab, US Treasury, and CalPERS. Whe the equivalent of the Japan earthquake/tsunami hits somewhere in the US, I think it is a good idea to have assets diversified into a few different places. Who knows whose headquarters and electronic accounting system will be out of service for a while?
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Old 03-14-2011, 04:30 AM   #5
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Quote:
Originally Posted by Ronnieboy View Post
(if you have $5 million would you keep it all in Charles Schwab)?
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Old 03-14-2011, 04:50 AM   #6
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I asked the same question (of myself).


IMO - It would be imprudent to assume that over the next 30 or 40 years some adverse event at any one company is not possible. How much of an impact it may cause if it occurred depends on the unknown (future)... perhaps due to changes in the financial services industry... anything could happen.


While it would seem like the risk is low for one of the large companies to suffer that kind of fate.... if something did happen, the impact could be catastrophic to the individual.


The SEC provides some protection in terms of company failure (you should research it to understand the details)... But... I think as a result of the 1929 crash... investment companies must not intermingle their clients accounts and the companies assets (separate accounts). Your account should be in your name.

But the SEC cannot not protect one against malfeasance or fraud from a determined person. They may only find out after the damage is done. The larger the entity, the more checks and balances that should be in place to early detect this type of situation... however... consider the Barings Bank and that bond trader that sank the bank.

We have our money spread between a few different companies because we (DW) and I hold employment related tax deferred accounts. I want to keep the number of different entities low to a manageable number.

I believe it is a good idea to only use the strong regulated investment companies that are scrutinized by one of the big 5 audit firms. I make it a practice to hold enough liquid reserves in two different entities just incase something happened (short-term disruption) so one does not get caught in a short-term cash crunch. When I FIRE, I intend to use my local bank to hold up to 1 year of spending in short-term FDIC guaranteed accounts.

Eventually I will roll our 401k's to Roth IRAs. I intend to split our assets/resources between several companies. Mutual funds will be across 2... at most 3 companies.
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Old 03-14-2011, 06:57 AM   #7
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Seems like a lot of work.
It really isn't, at least for me. Since 1982, DW/me have had our T/Roth IRA's at VG, along with our respective 401(k)'s at FIDO.

When I was in my mid-50's, I converted part of my 401(k) to a roll-over TIRA (in-company rollover, allowed by my plan administration) and rolled the rest after I retired, with FIDO.

Since I "harvest gains" from both firm's holdings, and keep them in a respective MM account, it's no problem. Additionally, since I do keep both FIDO and VG funds (slice/dice) along with other non-FIDO/VG funds (as offered by my previous 401(k) plan), I just keep them with FIDO.

I could use the features of both companies to withdraw my monthly income, but I've chosen to just keep them on one side (FIDO) and use their facilities to pay/report taxes, along with funding my retirement checking/savings accounts.

I do "harvest" from my VG accounts and add the proceeds to a TIRA MM account. When that builds, I simply have FIDO do a transfer from VG of the MM account content to my FIDO TIRA MM account - usually just once each year. There is no need to work with withdrawals from two (or more) companies.

That's what I do, since you asked. As far as the question of keeping everything in one "company", I don't think that really is a problem since the company is only holding funds made up of underlying securities of many, many other companies. Sure, you may have risk of that one "holding company" having problems with their on-line systems (both in security and execution/reporting), but I don't see that as a major problem (maybe that's because my career was in I.T. for many years, and I'm aware of some of the mitigated risks). If your choice is to invest with one firm, so be it.

DW/me have equity holdings in more than 500 companies world-wide, in addition to our bond fund holdings. I doubt that they will all disappear at one time - unless it's a global problem, either financial, environmental, or another rock hitting the Earth and wiping us out. If that was the case, we all would have much more problems than the security of our respective investment companies, IMHO.
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Old 03-14-2011, 07:16 AM   #8
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From everything I have read it should be safe to be in a single company like Vanguard, Schwab, or Fidelity but, like Chinaco, I am a bit paranoid and prefer two or three. We have about half in Vanguard now and DW's work accounts are at Fidelity. We plan to leave them there.
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Old 03-14-2011, 07:42 AM   #9
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I don't see any need to diversify across providers for mutual funds. Understand that as mutual fund shareholders we own shares in the mutual fund company, which in turn owns the investments (individual stocks, bonds, etc). The mutual fund company is conceptually similar to a trust and the mutual fund shareholders are the beneficiaries of the trust.

The investment advisor is a separate entity that simply provides investment advice to the mutual fund company for an advisory fee. So if the investment advisor has financial difficulties it would not affect the value of the mutual fund, but might affect the advisor's ability to continue to provide investment advisory services to the mutual fund - but that would be rare and the fund's board of directors could simply hire a different investment advisor.

Where your investments are obligations of a company, like individual bonds are or annuities issued by insurance companies, diversification is more important because if the company fails it would be unable to pay on the bonds or annuities.

I have everything at Vanguard (other than my employer 401k). It is simple and I sleep well at night.
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Old 03-14-2011, 07:49 AM   #10
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My concern with having all of my money with one company isn't that the company will fail. As others have said, when you invest in a mutual fund, you own the assets of that fund, not securities of the sponsor company. That arrangement should be safe (of course we only know in retrospect the things we couldn't anticipate beforehand ).

My concern is with theft and fraud. If someone hacks my account, or gets my password, or embezzles funds, I'm more at risk if all my assets are in a single account with a single company with a single password.
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Old 03-14-2011, 07:59 AM   #11
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Interesting concern I hadn't really though about. But if someone hacks you couldn't they hack multiple accounts as easily as they could hack one account?
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Old 03-14-2011, 08:08 AM   #12
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Interesting concern I hadn't really though about. But if someone hacks you couldn't they hack multiple accounts as easily as they could hack one account?
It depends. If they have a key logger on my computer and scarf all of my personal information, than it may not matter. But that is only one way to skin a cat. What if the information is stolen by an employee of the mutual fund company. Or that specific company's computer is hacked. Or any number of different scenarios where the hacker's information and access is limited. But even if they have passwords for all accounts, the chances that they'd be able to steal from multiple accounts undetected is still smaller than if they had to target just one.

And beyond the risk of nerd hackers, is old fashioned embezzlement and fraud, which would be company specific.
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Old 03-14-2011, 08:19 AM   #13
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If it makes you uneasy, you should have multiple accounts. Majority of my money is at Fidelity and some cd money at PenFed. I'm comfortable with that.
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Old 03-14-2011, 09:56 AM   #14
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This would be a great read for all of those interested in this discussion:

What SIPC Covers - Investor Protection
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Old 03-14-2011, 10:46 AM   #15
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Vanguard

heh heh heh - and dat's the name of that tune.

ok ok - still a few very small pesky DRIPs in a file cabinet.
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Old 03-14-2011, 11:17 AM   #16
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All mutual funds and a few "fun" stocks with VG, all under 1 roof.
Liquid cash - direct deposit into local credit union less than 10 miles away and a multi-week cash reserve stored somewhere You won't catch me in long lines if the power goes out.
Paper EE bonds on hand
Electronic I bonds with Treasury Direct
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Old 03-14-2011, 11:47 AM   #17
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I think I'm the original poster, I use Fido because that's through work, my personal is in VG. I plan on keeping it that way, just in case, it's not that much work and if something were to happen, it may take some time for the recovery process to work things out.
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Old 03-14-2011, 12:03 PM   #18
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100% with VG. Not worried.

To dodge the key-loggers,
1) have ZoneAlarm firewall,
2) with Avira antivirus,
3) behind a hard-wired router,
4) use only Yahoo e-mail with a nice spam filter,
5) do not open most attachments,
6) do not visit dodgy web sites,
7) turn off the machine when not in use.

Two professional friends have had their e-mails compromised and consequently I am getting about 3 Nigerian scams every day on my professional Yahoo e-mail address (which dumps them into the Spam folder). The Nigerians are getting very creative but, God are they stupid. How can anyone fall for them?

I would not be afraid of Schwab or Fido either. I used to have some stuff at Schwab and I was impressed with their preparations against a Japan-type disaster.
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Old 03-14-2011, 01:27 PM   #19
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Because of work I have my non-cash investments mostly with JP Morgan and the rest with Vanguard. After I quit my job i'll have everything with VG except my cash which will be in a credit union. I feel I have my money in too many places at 3. Couldn't imagine having 5 or more like some people.
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Old 03-14-2011, 03:53 PM   #20
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Quote:
Originally Posted by pb4uski View Post
I don't see any need to diversify across providers for mutual funds. Understand that as mutual fund shareholders we own shares in the mutual fund company, which in turn owns the investments (individual stocks, bonds, etc). The mutual fund company is conceptually similar to a trust and the mutual fund shareholders are the beneficiaries of the trust.

The investment advisor is a separate entity that simply provides investment advice to the mutual fund company for an advisory fee. So if the investment advisor has financial difficulties it would not affect the value of the mutual fund, but might affect the advisor's ability to continue to provide investment advisory services to the mutual fund - but that would be rare and the fund's board of directors could simply hire a different investment advisor.
Each mutual fund is a separate corporation. Each mutual fund uses an investment advisor.

So, what is Vanguard as far as mutual funds are concerned? I don't understand the organization and you seem to know what you're talking about.
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