Thursday, July 11, 2013

Worried about losing all the money you invested?

It's a lot more difficult to find a good picture for SIPC insurance than you would think.
photo credit: Brett Jordan via photopin cc

A while ago, I wrote a post on FDIC insurance, which protects your deposits. For example, your savings and checking deposit accounts are insured up to $250,000 (last I checked, this could change, as it has in the past). FDIC insurance does NOT cover things like mutual funds or stocks, but there is something that does: SIPC insurance. 

Read this if: 

1) You are worried that you will lose all your money if a company you invest with goes down. I know you worry about that all the time. But don't worry. 

(Note the keyword "with." Not "in." If you lose money because a stock or mutual fund you invested IN loses value, there's nothing you can do. SIPC deals specifically with brokerage firms, which are companies you invest through, or invest with.) 
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There are many reasons why people don't start investing, and one that I hear a lot is: "What if I lose all of my money when the company I invest with goes out of business?" Well, there's something called SIPC insurance that protects your money.

What is it? 

SIPC stands for Securities Investor Protection Corporation. They are not a government agency, and this is their mission statement, printed on their website (listed below): "Restoring funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms." 

How do I know if a company I invest with has SIPC insurance? 

I checked a couple of the major companies people invest with (Vanguard, T. Rowe Price, E*Trade, Fidelity), and they all have SIPC insurance. Just like with FDIC, companies who are "member SIPC" will let you know on their website. You can also Google the company name and "SIPC insurance." 

Limitations

SIPC won't recover the amount you think it will. According to SmartMoney, a column in the Wall Street Journal, this is the limitation: "The financial worth of your account (and so, your claim) is pegged to a specific time -- the date when SIPC asked a court to put the failed brokerage in liquidation. It does not cover any losses or gains beyond that date. Some investments, including commodities futures and currency are not covered." 

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Plan of Action: 

!) Check out SmartMoney for more information about all kinds of insurance: http://www.smartmoney.com/spend/family-money/what-fdic-sipc-naic-really-do/
2) Check out the official SIPC website for more background about SIPC if you're curious: http://www.sipc.org/Home.aspx  

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Do you have any other worries about investing? Let me know in the comments. 



As always, contact me with questions or suggestions! You can either comment directly on the post or send me an email to moneymattersjoan@gmail.com. 

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