Is it safe to keep all your money in Vanguard (in only one place)?

[Unionville]

Perhaps because I just read a few books on the financial crisis in 2008-2009, it has made me uneasy. The average person never imagined that major financial institutions on Wall street would fail like Lehman Brothers, Merrill Lynch, fire sales and about 200 banks.  Not to mention people (and institutions) who got wiped out by Bernie Madoff (which I can't imagine having ever invested in, in the first place). 

I have no confidence in the financial institutions to remedy the problem for the future, since there were multiple alarm bells foreshadowing this event, and yet they still fought any kind of regulation or had any motivation to prevent it.

I can't imagine Vanguard ever having problems since they seem 100% quality business, but I've always been a person that believes, one of the basics in financial planning is that you should not have all your assets in one place.

If you agree, Which other institutions would you recommend that is on par to Vanguard?  If you think I'm paranoid, I welcome your feedback also.

[Eric]

This may answer some questions:

http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/

[nereo]

There are many things to worry about; this isn't one of them.

If you invest in one of Vanguard's index funds, you are using Vanguard as the brokerage.  You aren't investing *in* Vanguard.  They take a (very!) small fee and invest your money across the index of funds or bonds that oyu have chosen.  For me that's the S&P 500.  What Vanguard does is 'rebalance' the allotment of stocks periodically so that each stock stays proportional to its market cap.  Otherwise overtime it would all get out of whack as stocks with low high dividends would become 'weighted' more than larger companies with a smaller dividend.

Even if Vanguard decides to close up shop, the money is still yours.  It's like your local bank closing.  It's still your money.

If you really don't want to go with Vanguard, you can buy shares in ETFs that do the same thing, but then you're probably giving your money to another brokerage like ING or ScottTrade or eTrade or something like that.

[Fireman]

I've looked and been unsuccessful in locating an answer so...

I understand Vanguard takes a small fee, 0.19% for me I believe.  When, and how often, is this fee imposed?

[curler]

You also may want to read up on SIPC.  It provides insurance against the brokerage firms failing.

[Unionville]

There are many things to worry about; this isn't one of them.

If you invest in one of Vanguard's index funds, you are using Vanguard as the brokerage.  You aren't investing *in* Vanguard.  They take a (very!) small fee and invest your money across the index of funds or bonds that oyu have chosen.  For me that's the S&P 500.  What Vanguard does is 'rebalance' the allotment of stocks periodically so that each stock stays proportional to its market cap.  Otherwise overtime it would all get out of whack as stocks with low high dividends would become 'weighted' more than larger companies with a smaller dividend.

Even if Vanguard decides to close up shop, the money is still yours.  It's like your local bank closing.  It's still your money.

If you really don't want to go with Vanguard, you can buy shares in ETFs that do the same thing, but then you're probably giving your money to another brokerage like ING or ScottTrade or eTrade or something like that.

But what about Merrill Lynch? They become insolvent.  They provided similar services as Vanguard, right?

[arebelspy]

Did you read the JLCollins link provided?  Did it all make sense?

[Tyler]

Vanguard is a good company, and JLCollins has some great points. The odds of your money in a Vanguard account just disappearing are very low, but if there's ever an issue (even something as simple as someone stealing your online password) it may take a little time to sort out.

For that reason alone I think it's perfectly reasonable to split your investments between more than one company. There are several other great well-established, low-fee options out there.

[Unionville]

Did you read the JLCollins link provided?  Did it all make sense?

Yes I read it, but it didn't address my question above about companies like Merrill Lynch who failed and they also do the same as what Vanguard does.

[clarkm04]

The issue with all the banks you mentioned wasn't with normal investment instruments.  They were super leveraged on mortgaged backed securities.  They made massive profits and were really greedy.  Then housing collapsed and they couldn't cover their bets.

Michael Lewis of Moneyball and Blindslde fame wrote an outstanding book entitled The Big Short about it.  There are others, but Lewis's is a light read, covers the concepts well and is entertaining.

[Unionville]

The issue with all the banks you mentioned wasn't with normal investment instruments.  They were super leveraged on mortgaged backed securities.  They made massive profits and were really greedy.  Then housing collapsed and they couldn't cover their bets.

Michael Lewis of Moneyball and Blindslde fame wrote an outstanding book entitled The Big Short about it.  There are others, but Lewis's is a light read, covers the concepts well and is entertaining.

I've listened to several audiobooks and watched documentaries on that market collapse and mortgage back securities, but it still does not clarify how Merrill Lynch is any different than Vanguard  (in terms of their business model).  They both still serve and sell investments to individuals. If an individual put 100% of their assets in Merrill Lynch, that probably would have been a mistake.  So, my question still remains.

[Unionville]

Vanguard is a good company, and JLCollins has some great points. The odds of your money in a Vanguard account just disappearing are very low, but if there's ever an issue (even something as simple as someone stealing your online password) it may take a little time to sort out.

For that reason alone I think it's perfectly reasonable to split your investments between more than one company. There are several other great well-established, low-fee options out there.

Can you name some of them?  I'm curious.

[TreeTired]

you should not have all your assets in one place.

I agree.   I have most of my financial assets with Schwab.   I became a little uncomfortable with this concentration of assets so I moved a small amount, maybe 10% over to Fidelity.

There may be lots of possibilities I have not thought of,  but one that has occurred to me is as simple as their website going down, or a cyber attack on a particular company that could prevent me from accessing my account for days.  I think it is prudent to split accounts between more than one broker, especially when your total financial assets go beyond a certain size.  That whole fiasco with MF Global was a real wakeup call. 

[Tyler]

Vanguard is a good company, and JLCollins has some great points. The odds of your money in a Vanguard account just disappearing are very low, but if there's ever an issue (even something as simple as someone stealing your online password) it may take a little time to sort out.

For that reason alone I think it's perfectly reasonable to split your investments between more than one company. There are several other great well-established, low-fee options out there.

Can you name some of them?  I'm curious.

Fidelity, Schwab, and TDAmeritrade are all very highly regarded.  Specifically, the no transaction fee Spartan index funds through Fidelity compete directly with Vanguard on costs.

[BlueHouse]

For many years I scattered my small funds across multiple companies and multiple funds.  Every time I left a job, I'd roll my 401K into an IRA at a different company.  The only thing it did for me was make it more difficult to properly allocate, challenge to manage, and cost more in fees.  Just last year I consolidated my IRAs into a single account.  Over the years, I realized that my vanguard funds performed the best and provided the most transparent data (and were downloadable into quicken so I could perform analysis).  Consolidating made my life much easier. 

[ThermionicScott]

Much of this has already been covered, but there's also an item in the Bogleheads Wiki about it:  http://www.bogleheads.org/wiki/Vanguard_safety

[pkm]

I'm curious - If you split up your money between 4-5 different institutions (ex. Vanguard, Fidelity, etc), does that increase your risk of identity theft (since you have to give out you SSN)?  At which point does the identity theft risk win over diversification?

[mxt0133]

But what about Merrill Lynch? They become insolvent.  They provided similar services as Vanguard, right?

Merrily Lynch became insolvent because they had huge losses in positions in CDOs.  The FED did not let them go bankrupt and pushed them in to the arms of BofA.  The investors in the company lost money but investors who had brokerage accounts with Merrily did not lose access their money. 

So even if Vanguard were to go bankrupt you would not loose your investments as they are invested in actual stocks, bonds, REITs, ect. 

The only way you would lose all your money investing in a Vanguard fund or any other mutual fund is if every company, bond, REIT, ect that the fund is invested is goes to zero.  In that case we have bigger issues to worry about than our retirement accounts.