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Posted On: 10/02/2021 9:13:48 AM
Post# of 86157
Hi All,
I’ve been doing some additional research on the SIPC $500k insurance limit and what to do if the value of your account exceeds this amount.
Here are some suggestions:
Choose only the best brokers and investment firms:
1) Always opt for top tier brokers (e.g. Etrade, Schwab, Fidelity, etc.) as they are much less likely to go bankrupt or have a major problem.
2) Keep your investments and money at respected top tier investment firms like Vanguard. As of 2021, Vanguard has more than $7.5 trillion in assets under management.
What to do if the value of your account exceeds the $500k SIPC insurance level:
Best:
Keep your accounts under the $500,000 limit (and not hold cash in excess of $250,000) is the only way to know that you’ll be 100% covered in the cases listed above. Just because something hasn’t happened in the past, doesn’t mean it won’t happen. Unlikely is not impossible.
About Risk Level:
If you have more than $5,000,000 at a single account type at one broker-dealer, it starts to become worth the extra effort to split your assets by either institution or legal entity. The risk may be small, but the potential losses are big. If you have this much money, why fool around?
I wouldn’t put too much faith into excess SIPC insurance. They usually come with an aggregate limit (a limit for all accounts at the institution) and you have no idea how close the firm’s current assets are to exceeding that value. The amount of protection you’d receive from this is not under your control.
If your account has between $500,000 and $5,000,000 in it, you would need a bankrupt firm with less than a 90% recovery rate to lose any money. This is quite rare.
Ultimately, you will have to weigh the extra risk against the added hassle of splitting your accounts by either institution or legal entity.
I’ve been doing some additional research on the SIPC $500k insurance limit and what to do if the value of your account exceeds this amount.
Here are some suggestions:
Choose only the best brokers and investment firms:
1) Always opt for top tier brokers (e.g. Etrade, Schwab, Fidelity, etc.) as they are much less likely to go bankrupt or have a major problem.
2) Keep your investments and money at respected top tier investment firms like Vanguard. As of 2021, Vanguard has more than $7.5 trillion in assets under management.
What to do if the value of your account exceeds the $500k SIPC insurance level:
Best:
Keep your accounts under the $500,000 limit (and not hold cash in excess of $250,000) is the only way to know that you’ll be 100% covered in the cases listed above. Just because something hasn’t happened in the past, doesn’t mean it won’t happen. Unlikely is not impossible.
About Risk Level:
If you have more than $5,000,000 at a single account type at one broker-dealer, it starts to become worth the extra effort to split your assets by either institution or legal entity. The risk may be small, but the potential losses are big. If you have this much money, why fool around?
I wouldn’t put too much faith into excess SIPC insurance. They usually come with an aggregate limit (a limit for all accounts at the institution) and you have no idea how close the firm’s current assets are to exceeding that value. The amount of protection you’d receive from this is not under your control.
If your account has between $500,000 and $5,000,000 in it, you would need a bankrupt firm with less than a 90% recovery rate to lose any money. This is quite rare.
Ultimately, you will have to weigh the extra risk against the added hassle of splitting your accounts by either institution or legal entity.
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