Please be inclusive and welcoming to everyone, regardless of their background, experience, or opinions.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 2
Do any of you have funds in excess of the FDIC minimum anywhere, or stock accounts which might be vulnerable to a brokerage failure, or money market funds that could wobble, given the current state of the banking industry?
If so, are you doing anything about it? Or have you even thought about it?
No. of Recommendations: 2
Yes, which is why I keep asking how people handle such things on other boards!
While I understand the concept of having multiple accounts at one institution (IRA, non-IRA, Roth IRA) to help avoid the 500K limit of SIPC, I don't know how to handle it when one of those accounts exceeds 500K.
Others have suggested that if you hold these accounts at one of the big brokers or banks (Vanguard, Fidelity, Schwab) that if they fail, you'll have far greater worries on hand, but that feels dismissive to me. Surely, people who had accounts at Lehman Brothers and Bear Stearns were equally horrified, yet one was saved and the other was allowed to fail.
I'm interested in knowing the answer to this as well.
SD
No. of Recommendations: 1
I'm not sure I know what makes a stock account vulnerable to a brokerage failure.
Does not ownership of the stock create an obligation between the holder of the stock and the company that issued it. If I buy a bunch of shares of Apple via Schwab, and Schwab goes out of business, am I not still a stockholder in Apple?
Baltassar
No. of Recommendations: 2
I'm not sure I know what makes a stock account vulnerable to a brokerage failure.
Does not ownership of the stock create an obligation between the holder of the stock and the company that issued it. If I buy a bunch of shares of Apple via Schwab, and Schwab goes out of business, am I not still a stockholder in Apple?
Baltassar =====================
Yes, here is how it works..
https://www.finra.org/investors/insights/its-your-...
Rather, most stocks these days are held in the 'street name' of the broker, rather than under the name of any particular investor. In that situation, when an investor opens an investment account, the stocks he or she buys are registered in the issuer's books as belonging to the brokerage firm. The brokerage firm, in its records, however, lists the investor as the actual owner. The broker holds the stock in a 'book-entry' form, according to the Securities and Exchange Commission.
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The street name system is designed to withstand even a brokerage firm meltdown. When a firm faces liquidation, regulators, including the SEC and FINRA, work to ensure that customers' securities are transferred to another firm. Keeping investments in street names can actually make the process easier because all of the documentation will be in one centralized account.
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... much more at link
No. of Recommendations: 1
Thanks.
I'm glad I haven't been missing something all these years.
Plus, another reason not to hold too much cash!
Baltassar
No. of Recommendations: 1
When I had a bunch of cash from a house sale I first broke it up among various online banks that paid higher interest and kept amounts under $250K. Then as treasuries/rates have gone up, I moved most of it to Schwab and invested mostly in various treasuries and a small amount (10%?) in the market.
The insurance for brokerages seem more confusing to me. SIPC limits but most all brokers also have other insurance. The catch with the "extra" insurance is that it has an aggregate limit so if something terrible happened with a brokerage I would expect that limit to be hit quickly.
I do believe not to put all of my money in any one brokerage, bank, credit card, etc. I've had cases myself and seen others temporarily have money access issues which I'd prefer not to have to worry about.
I think if things got really ugly I'm not sure how you could hide from it. If it hit banks hard then it would filter down to all kinds of businesses that need access to credit lines and their own money and would just cripple the economy. Always can buy physical gold but I'm not sure how easily you could use that in a catastrophe.
No. of Recommendations: 2
Always can buy physical gold but I'm not sure how easily you could use that in a catastrophe. - richinmd
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Better than gold is toilet paper and ammo. Can trade for things in much smaller denominations that way. One round of .223 for a can of pork and beans is more useful than 1 oz of gold for 500 cans.
No. of Recommendations: 1
The "other insurance" business is a mystery to me. It is clearly not intended to insure against some kind of general failure. Schwab's private insurance has an "aggregate" maximum of $600M, and a limit of $150M per person. I am at a loss to guess what kind of risk warrants such coverage. Accounts getting hacked, maybe?
Anyway, I've never held as much as $250K in cash on anything other than a transient basis. I keep what I think of as a "cash" reserve in an ultra-short bond fund, plus a modest pool of actual cash in my checking account.
Baltassar
No. of Recommendations: 4
Goofy, I don't have the link at hand (I think I posted an excerpt over on the Berky board), but Schwab says that stocks are held in the client's name at the broker-dealer. So I don't worry about them. Money-market accounts can potentially "break the buck," as we saw back in the financial meltdown; but I haven't made any move to mitigate the (very low?) possibility of it occurring or having more than a momentary impact before the Fed and/or the Treasury stepped in to restore order.
I have, however, moved (more) cash from "sweep" accounts (paying, like, 0.4% interest) into money-market and treasury-backed overnight accounts (paying more than 10x that, currently). I'd kept cash in the sweep accounts in order to purchase equities if immediate bargains appeared. But I decided that I can surely live with a 24-hour turnaround, esp. since the overnight accounts are marginable, and so I'd be paying only one-day's interest should I care to use margin (which I doubt very much).
No. of Recommendations: 3
Anyway, I've never held as much as $250K in cash on anything other than a transient basis.
Yes, this. We sold a condo in Boston for just not quite $1M. Waited hours for the wire transfer to come through, then it all went into one account just as the bank closed. Worried sick all night, and hotfooted it into several separate accounts as quickly as I could the next morning.
No. of Recommendations: 2
Goofy -
I have been moving my wife and my cash from Fidelity Money Market funds into individual bank CDs offering great terms and are FDIC insured. I've created CD ladders at 3,6,9,12 month intervals. I had a difficult time purchasing some of the CDs. When I queried Fidelity CD offerings, the list said that there were say 60 CD's being offered with that tranche. By the time I selected that CD, entered my purchase quantity, built other elements of the CD ladder = poof, one or more of those CDs were sold.
We also have accounts in the name of Revocable Trusts for my wife and I which extends our FDIC coverage as well. We have accounts at Ally Bank which offers some nice CD rates under both our names individually, joint accounts, and trust accounts. Those three different ownership methods provide us with the FDIC coverage that we need at Ally.
We don't own ANY stocks at the present time. I'm patiently waiting on the sidelines for some extreme financial weather event to happen, then I may jump in with some cash. Don't really need the added risk though. Our financial plan is pretty conservative and we should have the necessary cushion just by LBYM (as we pretty much always have done) and sticking with NOT losing any money in the stock market ;-)
Cheers,
'38Packard
No. of Recommendations: 4
We don't own ANY stocks at the present time.
Whatever works for you, but that would seem to be short-sighted. Note that most of the higher-rate CDs on offer for periods longer than, say, a couple of years, are callable--which means that you could find your ladder falling apart when interest rates turn lower ... and stocks generally have become more expensive than they are now.
It's certainly difficult to find good value in stocks these days, but it's not impossible. One could do worse than own some BRK at current prices, for example. Or PFE, which pays a dividend that rivals CDs, is very cheap, and offers at least some growth potential.
No. of Recommendations: 2
Do any of you have funds in excess of the FDIC minimum anywhere, or stock accounts which might be vulnerable to a brokerage failure, or money market funds that could wobble, given the current state of the banking industry?
Yes. Not worried about it.
In 2008-9 GFC FDIC did not bail out depositors who had excess of limit $100k then, $250k now). FDIC has since learnt its lesson. Pretty sure they will fully cover all deposits now as they did in recent bank failures of SVB etc.
SIPC is an even remoter contingency. I don't think Schwab, Fidelity or Vanguard can "fail" like a bank can, or if they did, they would walk away with my money.
No. of Recommendations: 1
I don't think Schwab, Fidelity or Vanguard can "fail" like a bank can...
The brokerage part of Schwab, probably not. But the BANK part? It certainly could, and for much the same reason that regional banks face challenges: when yields on CDs and Treasuries were near zero, many folks didn't much care whether they had funds lying around in the bank paying next to nothing in interest. But now that you can get 5% or so interest on CDs and even Money Market accounts, lots of $$ has flowed out of Schwab Bank and into Schwab brokerage accounts. I know mine has.
No. of Recommendations: 1
I'm curious that no one has mentioned Treasury Direct as an option. We have much of our cash in laddered 8week tbills directly with TD and it is pretty painless. Minus the occasional gov't default it seems safer than any of the banks/brokerages. Am I missing something?
Rgds,
HH/Sean
No. of Recommendations: 1
We have much of our cash in laddered 8week tbills directly with TD and it is pretty painless. Minus the occasional gov't default it seems safer than any of the banks/brokerages.
Perhaps your tolerance for pain is greater than mine. To me, treasurydirect.gov feels like a throwback to the '80s. DW and I have 4 I-bonds purchased and held in there, because that's pretty much the only way to do it. For my other Treasury needs, I lose no sleep over buying and holding them at Schwab. The bonds are my property, not Schwab's, and the safeguards are the same as they would be at the Treasury.
No. of Recommendations: 4
Perhaps your tolerance for pain is greater than mine.
Certainly the "mouse over the keyboard to type in your password" was beyond annoying, but they have given up that "feature" and now login is semi-painless (you still get the one-time passcode, but lots of other banks send an auth code in a text message so that seems a wash). I also have T-bills through Fido but I like spreading the risk around so assets are spread amongst Fido, Vanguard and Treasury Direct.
Rgds,
HH/Sean
No. of Recommendations: 2
