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Learning, Sharing, and Teaching => Investor Alley => Topic started by: FIREby35 on April 22, 2021, 10:29:45 AM

Title: Diversification of Investment Firms When Holding Index Funds
Post by: FIREby35 on April 22, 2021, 10:29:45 AM

Friends -

I set my "lazy investor" strategy years ago. Now, I turn around and have hundreds of thousands in paper assets. All in VTSAX and SP500. I'm 100% in stocks bc I'm still only 36.

In terms of diversification, is there any reason to diversify across investment houses, in the same broad based index funds? For example, should I put some cash with Vanguard, some with Fidelity or other investment house? My thought is that if Vanguard goes Madoff, Behr Sterns, Lehman brothers or something, I might regret not splitting funds across investment houses, while still in the same broad based, low-cost index funds.

Just fyi, the money I'm thinking of is in three accounts. Two are 401k accounts through "Ubiquity." The other account is directly with Vanguard.

What do you think? Is this reasonable or necessary?

FIREby35

Title: Re: Diversification of Investment Firms When Holding Index Funds
Post by: SwordGuy on April 22, 2021, 11:18:10 AM

Companies and accounts get hacked.   Computers fail and backups don't work.   Floods, hurricanes, earthquakes that destroy data centers happen.   

I think it's very prudent to spread the assets around. 

Title: Re: Diversification of Investment Firms When Holding Index Funds
Post by: bacchi on April 22, 2021, 11:36:43 AM

Yeah, I agree with SwordGuy. It's easy to maintain; I have my assets split between Vanguard and Fidelity.

I closed my account at Man Financial right before they collapsed. Not everyone got their money back but, even if they did, the money was held captive for a bit. It'll be hard to convince a creditor that you'll pay them as soon as the SIPC makes you whole.

Title: Re: Diversification of Investment Firms When Holding Index Funds
Post by: Telecaster on April 22, 2021, 12:35:26 PM

SIPC protects against the loss of cash and securities  held by a customer at a  SIPC-member brokerage firm. The limit of SIPC protection is $500,000 per account, which includes a $250,000 limit for cash.   Fidelity has more coverage, and I believe Vanguard does too.

What that means is in the event failure SIPC will get your securities back.  This however, can take some time.  I think it is entirely reasonable to split your accounts between brokerages to protect against malfeasance or natural disaster.   It is what I do personally.