The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: vivian on September 21, 2014, 01:02:23 PM
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My husband's only option for his 401K is with Vanguard. We keep our non-retirement investment in Vanguard index funds. My company offers two options for our retirement funds-one Vanguard and one with another company. Vanguard has the lowest fees and so right now mine are with them. But, part of me is worried that if Vanguard goes belly up (rare, I know, but this is worst case scenario planning), then maybe we would be better off if we didn't have all our money tied up with them. Am I crazy to be worried about this? Does anyone else have all their money stored with one company?
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No, you aren't crazy. However, even if Vanguard went belly up it shouldn't affect your investments. Vanguard's assets and their customer's assets should always be kept separate. They can't use cash from your account to pay staff salaries, utilities, or anything else. Barring fraud, a bankruptcy of Vanguard should not affect your assets.
That said, I have accounts with both Vanguard and Fidelity for a couple reasons. First, the aforementioned though extremely unlikely fraud scenario. Second, and more concerning to me, is outside criminals hacking into an institution and wreaking havoc.
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If everything you have with a broker is invested (as in stocks, bonds, ETFs, mutual funds) then you really don't have much to worry about. There is a reason it is called a security. It is in your name so if they go belly up those securities will still be I your name and can be transfered to another broker.
Now cash is another issue. There's SIPC insurance but I wouldn't rely on it. Don't leave cash with a broker. It can be stolen as in the few high profile frauds the past several years. Instead of cash have it invested in a very short term bond fund like SHY or BIL.
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Your assets are legally protected as has been explained above, however, I would not sleep well at night with all of my retirement assets with one company. It doesn't matter how "Don't be evil" Vanguard or anyone else is.
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I used to have my ROTH IRA split between Fidelity and Vanguard. I transferred the Fidelity to Vanguard. I'm not worried about it.
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http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked/
Just going to leave this here.
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Yes all my money is with Vanguard, either directly through my Roth or indirectly through their ETFs I purchase via TD Ameritrade (HSA account). I have no issues what-so-ever with this. In fact, I'd feel much worse if my money was with other, less trust-worthy, institutions. Ask yourself, do you feel uncomfortable having your emergency fund at your local credit union? By the same logic, why not spread it out over multiple accounts? Simply because the hassle outweighs the risk. Your credit union is insured, your money is as safe as it would be with a bank, only you aren't charged the ridiculous bank fees and share your money with your community. The Vanguard situation is analogous in many ways.
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If you have the option, you might look into investing through a Panamanian investment house. Your biggest long term risk isn't whether Vangaurd will have problems since they are well managed, but whether Uncle Sam may decide that you have too much money in your accounts and help himself to it.
I know at this point that seems unlikely in the short term, but remember that the US only recently relegalized the ownership of gold after confiscating all privately held gold.
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Am I crazy to be worried about this? Does anyone else have all their money stored with one company?
I believe most of us are crazy to NOT be worried about this. I was far more sanguine about holding my assets at a brokerage firm until the MF Global fiasco. Turns out you can lose money to fraud that you thought was safe at a brokerage firm. Aside from that risk, what if a big firm was hit by a major cyber attack or computer crash (please don't reassure me with their cloud backup system). What if all your electronic blips at firm X just disappeared one day? Anyway, the net result for me was I am overconcentrated at Schwab, so last year pulled some money out of Schwab and re-opened an account at Fidelity.
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Am I crazy to be worried about this? Does anyone else have all their money stored with one company?
I believe most of us are crazy to NOT be worried about this. I was far more sanguine about holding my assets at a brokerage firm until the MF Global fiasco. Turns out you can lose money to fraud that you thought was safe at a brokerage firm. Aside from that risk, what if a big firm was hit by a major cyber attack or computer crash (please don't reassure me with their cloud backup system). What if all your electronic blips at firm X just disappeared one day? Anyway, the net result for me was I am overconcentrated at Schwab, so last year pulled some money out of Schwab and re-opened an account at Fidelity.
Once again it was cash at the broker that caused clients at MF Global to lose their money. Anyone that had their money fully invested in securities only had to go through the hassle of moving it to another broker. Most people don't have lots of cash sitting in their brokerage account, but a futures broker like MF Global can have quite a bit. This is because the margin requirements for futures are pretty low compared to the amount of money you control per contract. Commodity traders are stupid if they leave 80% of their account in cash while the 20% is used for margin. Any trader worth his salt would have that 80% invested in 'risk free' treasury bills for this exact reason. The people hurt by MF were not managing their risk properly.
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Thanks!