SIPC insurance?

[cyclone6]

I'm thinking about consolidating all of my holdings in my E*Trade account from various other sources. But I see that the SIPC insurance only goes to 500k. I've got just about 1.2M, and would sure like to have it all in one place - just for convienence.

Do you folks have most holdings in one institution, or spread it around?

Just curious...

Thanks!

[Patrick]

Spread it!

[Nords]

Quote:

Originally Posted by cyclone6 I'm thinking about consolidating all of my holdings in my E*Trade account from various other sources. But I see that the SIPC insurance only goes to 500k. I've got just about 1.2M, and would sure like to have it all in one place - just for convienence.

The financial professionals can tell you better than I can remember, but I can't remember a situation where the SIPC and the brokerage's private insurance couldn't cover their customers. E*Trade may carry more than the SIPC requirement.

Quote:

Originally Posted by cyclone6 Do you folks have most holdings in one institution, or spread it around?

We have most of our portfolio with Fidelity, a bit with Tweedy, Browne (Global Value) and a couple CDs with Pentagon FCU & Navy FCU. We'll eventually consolidate the Tweedy into Fidelity and just chase the highest CD rates with whatever brokerages or credit unions can offer us. I don't see any reason to spread it around.

[saluki9]

I wouldn't worry about this too much. In addition to SIPC Etrade also has a $600,000,000 policy with Lloyds of London.

in addition, I just checked their financial statement and they are well within the capital requirements for Broker dealers.

[Bob_Smith]

Quote:

Originally Posted by Nords I don't see any reason to spread it around.

I agree with Nords. This is not on my list of concerns. I did look into it at one time but I don't recall the specifics - I just recall checking it off my list of things to be concerned about.

[Patrick]

I don't understand why people aren't concerned about the possibility of losing $700K. That's a lot of money to me.

[Bob_Smith]

Quote:

Originally Posted by Patrick I don't understand why people aren't concerned about the possibility of losing $700K. That's a lot of money to me.

The possibility of losing money is remote. SIPC protection is only the first line of defense; there's usually a great deal more. And the nature of the securities is such that you're already assuming the risk that the securities themselves will tank - so what's left? Fraud. Theft of securities. The brokerage firm holding the securities tanks, the records are messed up, and the court appoints a trustee to sort it out... So I don't place assets with any firm that isn't an SIPC member, I make sure they have insurance to cover the rest, I avoid small operators, I maintain CDs/I-Bonds that I could live on for a long time if my firm, Vanguard, tanks (not likely), and I reconcile and keep copies of statements.

Spreading assets around due to SIPC limits would increase my costs, make allocation and re-balancing more difficult, and generally complicate my record-keeping. It's just not worth the extra cost and hassle, IMO.

[uncledrz]

I'd try to stay within the SIPC insurance, no reason not to.

Another reason to spead funds in more than one account is to avoid potential problems that would tie up all of your funds. For example, Vanguard had access problems from Thailand not too long ago. Trying to prevent fraud, but if you are in Thailand for an extended period of time, nice to be able to access accounts that are not blocked.

[Nords]

Quote:

Originally Posted by Patrick I don't understand why people aren't concerned about the possibility of losing $700K. That's a lot of money to me.

It's a lot of money to most people, but the major brokerages are more than insured for it. I don't worry about it any more than I worry about being struck by lightning while I'm surfing... it's certainly not enough to make me paddle in!

[JohnEyles]

Quote:

Originally Posted by tio z Another reason to spead funds in more than one account ...

I became a little nervous about having SO much of my money at Schwab, which
I like a lot actually. So I opened a Vanguard Mutual Fund account. This has the
advantage that I can trade the highly-regarded Vanguard funds for free. Even
though many of these have ETF equivalents that can be traded cheaply at Schwab,
others of interest to me do not - like allocation funds like Wellington and Wellesley,
and their bond funds (particularly the muni bonds).

It's interesting that the prevailing attitude towards this question (don't worry - be
happy) is so different from that towards the immediate annuity (if you really MUST
do this stupid thing, at least spread it among several insurers). I would like to hear
what Brewer has to say about this question.

[bpp]

I'm with the "spread 'em" crowd. No reason not to. And SIPC doesn't cover all possible problems; tio z mentioned Vanguard blocking Thailand as one possible issue, and another is that SIPC doesn't protect you if a hacker breaks into your account. A little extra paperwork seems like cheap insurance against single-point failure.

[Dawg52]

Below is Fidelity's response to the 500k SIPC insurance cap. Seems reasonable to me.

The Securities Investor Protection Corporation (SIPC) protects customer accounts up to $500,000, with a limit of $100,000 for cash balances. In addition to the portion protected by SIPC, Fidelity purchases additional coverage from the Customer Asset Protection Company (CAPCO) to cover the remaining net account value. This additional coverage is called Excess SIPC Coverage. CAPCO, a licensed New York insurer, has received an A+ financial strength rating from Standard& Poor's.

[brewer12345]

I think that you would be better served by spending the time and money to put a meteorite deflector on your car rather than opening new acccounts to stay under the SIPC limits. Definately tinfoil hat territory here.

What I think would be sensible precautions would be to make sure you do business with a large brokerage and see that they have excess insurance over the SIPC limit. Frankly, the circumstanes under which a major borokerage fails are likely to be one in which either we all have a lot more problems to worry about (like finding food), or a case where the Fed organizes a bailout because a catastrophic failure of a Schwab/Fido/Merrill/Morgan Stanley/Vanguard is likely to endanger the entire world financial system.

[FinanceDude]

Quote:

Originally Posted by brewer12345 I think that you would be better served by spending the time and money to put a meteorite deflector on your car rather than opening new acccounts to stay under the SIPC limits. Definately tinfoil hat territory here. What I think would be sensible precautions would be to make sure you do business with a large brokerage and see that they have excess insurance over the SIPC limit. Frankly, the circumstanes under which a major borokerage fails are likely to be one in which either we all have a lot more problems to worry about (like finding food), or a case where the Fed organizes a bailout because a catastrophic failure of a Schwab/Fido/Merrill/Morgan Stanley/Vanguard is likely to endanger the entire world financial system.

Would you not put FDIC limits in the same vein??

[brewer12345]

Quote:

Originally Posted by FinanceDude Would you not put FDIC limits in the same vein??

Pretty much, provided we were talking about a very large bank. If we are talking about the county credit union, I would stay below the insured limits.

[FinanceDude]

Quote:

Originally Posted by brewer12345 Pretty much, provided we were talking about a very large bank. If we are talking about the county credit union, I would stay below the insured limits.

Like Southwestern Good Ole Boy Network Wildcat Oil Reserve Credit Union?

[brewer12345]

Quote:

Originally Posted by FinanceDude Like Southwestern Good Ole Boy Network Wildcat Oil Reserve Credit Union?

Exactly. I wouldn't go over the limits on the West Coast Gay, Lesbian, Bisexual and Transgendered Mutual Savings Bank, either.

[Running_Man]

Quote:

I think that you would be better served by spending the time and money to put a meteorite deflector on your car rather than opening new acccounts to stay under the SIPC limits. Definately tinfoil hat territory here

Why is it anytime one asks a question and there is a disagreement over a low probability event happening that the response is "tinfoil hat territory". I take answers such as that as insulting the person since you are not able to provide an intelligent and rational counter-arguement so you demean anyone in disagreement. I find this type of arguement very disrespectful.

Do we honestly all believe a fraud cannot occur? If Amaranth can lose 2/3 of it's value in 2 weeks from 1 broker who independently lost over 6 billion dollars? The San Diego County Pension fund has lost 105 million out of 175 million in a supposedly "safe" investment and may lose the entire 175 million. San Diego County was "saved" because they had spread their investments around. That is the benefit of diversification of investments. All in one basket allows one lightning strike to wipe you out.



http://www.nctimes.com/articles/2006...4311_24_06.txt

[brewer12345]

Quote:

Originally Posted by Running_Man Why is it anytime one asks a question and there is a disagreement over a low probability event happening that the response is "tinfoil hat territory". I take answers such as that as insulting the person since you are not able to provide an intelligent and rational counter-arguement so you demean anyone in disagreement. I find this type of arguement very disrespectful. Do we honestly all believe a fraud cannot occur? If Amaranth can lose 2/3 of it's value in 2 weeks from 1 broker who independently lost over 6 billion dollars? The San Diego County Pension fund has lost 105 million out of 175 million in a supposedly "safe" investment and may lose the entire 175 million. San Diego County was "saved" because they had spread their investments around. That is the benefit of diversification of investments. All in one basket allows one lightning strike to wipe you out. http://www.nctimes.com/articles/2006...4311_24_06.txt

If I were really trying to be disrespectful, I would have told you to go [moderator edit], right after you finished [moderator edit].

What would you like me to say? If a major securities brokerage goes seriously belly-up, it is likely that SIPC will blow up, as will whatever supplemental insurer is jumping in. Given the exposure that other capital markets players have to all the major brokerages, many other financial institutions would be in trouble, and there would be a cascading effect. So unless the Fed decided to backstop a bailout effort, kiss the world economy good-bye.

But if you are dealing with an on-shore regulated financial institution of any size that is watched by the federal regulators, the Fed, probably the FBI, the rating agencies, and the credit departments of all of their couter-parties, the likelihood of a serious problem is so many standard deviations away from the present that we might as well be worrying about the above-referenced meteorites, the Elders of Zion, and the state of the orgone field that surrounds pluto.

[justin]

Quote:

Originally Posted by Running_Man Do we honestly all believe a fraud cannot occur? If Amaranth can lose 2/3 of it's value in 2 weeks from 1 broker who independently lost over 6 billion dollars? The San Diego County Pension fund has lost 105 million out of 175 million in a supposedly "safe" investment and may lose the entire 175 million. San Diego County was "saved" because they had spread their investments around. That is the benefit of diversification of investments. All in one basket allows one lightning strike to wipe you out.

The San Diego County pension fund made a bad investment. Simple as that. Their loss is not the kind of loss SIPC insurance covers. Why did you throw the San Diego County pension fund issue into this discussion at all?