Author Topic: Do you have all your (taxable) investments at one institution?  (Read 519 times)

Alps

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Do you have all your (taxable) investments at one institution?
« on: February 13, 2020, 03:54:25 AM »
Hi everybody,

my taxable investment account is creeping up to a level where I'm starting to be uncomfortable with having all my money in one place. On this forum I often read about people having 500k or more in taxable investments. Are these all in one institution?

I have a "custody" account, I'm not sure if this concept exists in the US but it means the institution is not allowed to use my money for internal use, so it should be safe from speculation. However we all know that financial institutions sometimes go under with no funds left to pay their liabilities, and I don't want to lose alll my money in this case!

Complicating factor is that I currently have my money in the one bank that has extremely low fees, which is very unusual for my country (though I guess I should check again, it's been a while..). Other accounts usually cost so much that any investment gains are halved. So I don't really want to open other accounts if I don't have to, but as I said I'm starting to get uneasy.

How are you guys doing this?
« Last Edit: February 13, 2020, 03:59:52 AM by Alps »

Lucky Penny Acres

  • 5 O'Clock Shadow
  • *
  • Posts: 48
    • Lucky Penny Acres
Re: Do you have all your (taxable) investments at one institution?
« Reply #1 on: February 13, 2020, 07:32:56 AM »
I personally have investments with multiple providers, but more for access to specific investments at the lowest cost rather than concern for risk of collapse.

Check if your country has standard insurance for financial accounts. And check with your provider to see if they have supplemental insurance.

For example, almost all brokerage accounts in the US have SIPC insurance which provides for protection for missing securities up to $500k per provider (and certain different types of account at the same provider are also covered up to $500k each).  Note that this is on top of actual recovery from the financial firm in the first place - most of the time during a collapse the investor clients retain all of their securities so no insurance is even needed.

Beyond that basic level of insurance protection, many of the larger providers also have insurance policies that provide protection for larger amounts. Vanguard has supplemental insurance up to ~$50 million per investor, though there is an aggregate cap of a few hundred million total.

The risk of loss of assets from a custodial account is quite low - as you note the assets are required to be separated from the operating accounts of the financial firms. Even if a financial firm goes under, most of the time the vast majority of client assets are safe and returned to investors. Even in the case of Lehman Brothers, investor clients in custody accounts received all of their assets back.

The annual report for the SIPC (https://www.sipc.org/media/annual-reports/2018-annual-report.pdf) shows less than 1% of investor money not paid out to investors.

Even in cases of outright fraud (Bernie Madoff), investors holding less than $1.4 million received it all and investors with greater than that amount received ~64% approximately. 

If you are dealing with large, reputable financial firms, the risk of loss from a financial firm collapse is extremely small and not something I would be at all concerned about.

terran

  • Magnum Stache
  • ******
  • Posts: 2564
Re: Do you have all your (taxable) investments at one institution?
« Reply #2 on: February 13, 2020, 07:44:14 AM »
The US has good protections for this such that I'm confident that if the investment firm went under I'd still get the underlying investments that I hold. I'd be very comfortable having all my my money (taxable and retirement accounts) at Vanguard, Fidelity, Etrade, or Schwab, or any of the big banks (if I could get good investment options without extra fees, which I might not) like Bank of America (Merrill Lynch) or Chase. See https://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/ -- most of that applies to any of the big guys.

However, since you don't live in the US you should look in to what kinds of protections are offered to investors in your country.

RyanAtTanagra

  • Handlebar Stache
  • *****
  • Posts: 1173
  • Location: SF Bay, CA
Re: Do you have all your (taxable) investments at one institution?
« Reply #3 on: February 13, 2020, 03:52:41 PM »
This comes up fairly often and the common advice is that you're fine due to all the protections.  However, once I hit a certain dollar amount it just made me uncomfortable so I split up my IRA and taxable accounts so they weren't all at the same brokerage.  Sometimes what helps you sleep at night isn't logical, but as long as it's not counter-productive (which I don't think having two brokerages vs one is), then *shrug*.

Alps

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: Do you have all your (taxable) investments at one institution?
« Reply #4 on: February 26, 2020, 02:00:11 PM »
Thank you all for your answers! And especially thanks to @Lucky Penny Acres for the detailed explanation on insurance and SIPC. That report had numbers with a lot of zeros at the end...

I'll have a look whether my firm has similar insurance.