Schwab down 40% on the year, anyone worried?

[patjk]

It is a big concern as one of my main brokerage accounts, but also perhaps a great opportunity.  Curious of all your perspectives.

If I wanted to diversify my brokerage account to others, what's the best way to go about it?

Thanks in advance!

[lhamo]

Your problem most likely isn't your brokerage -- it is your asset allocation.

Brokerage firms are like buckets.  They are a place to hold your assets.  How the value (level) of the assets rises and falls depends on what you are holding in the bucket.

[ChpBstrd]

I'm not worried, but I find it interesting how the rise in interest rates whacked brokerages.

I think insurance companies and pension plans could be the next shoes to drop, right after regional banks experience a wave of defaults on empty office buildings.

[Turtle]

There haven't been any fundamental changes which would logically effect their stock price so drastically.  My guess is Schwab got caught up in the Western US banking scare because of being based in San Francisco.

It doesn't seem like their leadership is worried about it long term either, given how much money their executives put into buying stock when it was down.

[TomTX]

It is a big concern as one of my main brokerage accounts, but also perhaps a great opportunity.  Curious of all your perspectives.

If I wanted to diversify my brokerage account to others, what's the best way to go about it?

Unlike a bank, brokerages don't get to mingle your money with their money. They are a custodian. Unless Schwab is defrauding you, there is really no risk for you if they go bankrupt, other than time/hassle.

[NorCal]

Don’t forget that Schwab is a bank as well as a brokerage.

I did see some commentary that Schwab holds a large amount of long term bonds and has a decent amount of uninsured deposits. I’m too lazy to try and quantify these myself though.

[effigy98]

Company is insolvent, but they are probably too big to fail. They would start a cascade of confidence issues from investors if they were not saved and this entire system is only based on confidence.

[TomTX]

Don’t forget that Schwab is a bank as well as a brokerage.

Sure.

However, having a bank attached doesn't affect the safety of funds in the brokerage.

When you use a brokerage, your money/investments are kept separate. There is no risk of a "bank run"
When you deposit in a bank, they commingle your money and can do pretty much whatever they want with the funds, limited only by things like laws and regulations.

Many banks actually have a brokerage attached: Chase, BoA, Wells Fargo, etc. Doesn't matter at all, except for funds you have in the bank instead of the brokerage.

[ChpBstrd]

The issue is that Schwab (and all other brokerages) take your cash or money market balances and invest them in things like long-duration treasuries, mortgages, etc. and keep the interest. It's how they compensate themselves for all the free services they provide.

When interest rates rose and the resale value of those long-duration assets fell, Schwab found itself in the same position as banks. Deposit liabilities exceeded or came close to exceeding the value of the asset base. The exceptions are that (a) brokerage cash balances don't have guarantees like bank accounts do, which could make them more logical candidates for bank runs, and (b) it's not just withdraws that could break Schwab; a frenzy of asset buying or transfers by Schwab customers could force the brokerage to sell depreciated assets, recognize losses, and be unable to execute customers' orders. That's the doomsday scenario being priced in at Schwab.

[TomTX]

The issue is that Schwab (and all other brokerages) take your cash or money market balances and invest them in things like long-duration treasuries, mortgages, etc. and keep the interest. It's how they compensate themselves for all the free services they provide.

No. You are describing a bank.

Brokerages don't work like that.

Brokerage accounts do have protection like bank accounts. It's just SIPC instead of FDIC, and is only needed if your broker actually defrauds you.

So much wrong in your post.

[Stimpy]

The issue is that Schwab (and all other brokerages) take your cash or money market balances and invest them in things like long-duration treasuries, mortgages, etc. and keep the interest. It's how they compensate themselves for all the free services they provide.

No. You are describing a bank.

Brokerages don't work like that.

Brokerage accounts do have protection like bank accounts. It's just SIPC instead of FDIC, and is only needed if your broker actually defrauds you.

So much wrong in your post.

You are aware that they are ALSO a bank... Not just a broker, so what ChpBstrd is saying is true.    I know most people (myself included) don't think bank when we think of them but they are, or at least have products that make them a bank so....  Anything that applies to any other banks applies to them as well.

But you are correct, Broker accounts are covered by the SIPC.  And as far as I am aware are not  treated the same way as regular bank accounts.  (I could be wrong, I have not dug too deep into that particular hole)

[TomTX]

You are aware that they are ALSO a bank...

Again, having an associated bank using the same "Schwab" (or "Chase") name is completely irrelevant if your assets are in the Schwab brokerage.

I'm not sure how people who have been here awhile can be so strident about their ignorance.

[NorCal]

You are aware that they are ALSO a bank...

Again, having an associated bank using the same "Schwab" (or "Chase") name is completely irrelevant if your assets are in the Schwab brokerage.

I'm not sure how people who have been here awhile can be so strident about their ignorance.

Just because assets in a brokerage are segregated and insured doesn’t mean a blowup at Schwab the bank would be a non-event.

Remember, Schwab has many roles. In an extreme but unlikely case, I image they could be forced to close down their fund management business.

I personally switched my banking to Schwab not too long ago, and it would be far from a non-event in my life.

[SilentC]

You are aware that they are ALSO a bank...

Again, having an associated bank using the same "Schwab" (or "Chase") name is completely irrelevant if your assets are in the Schwab brokerage.

I'm not sure how people who have been here awhile can be so strident about their ignorance.

I dunno, I’m staring at financial statements for several brokers and they all take client cash and lend it. The line item is a liability “brokerage client payables” or “customer payables.” 

Yes I’m worried about Schwab and looking at alternatives.  Anyone do a lot of fixed income trading and like another platform?  I have TD which sucks for corporate bonds and those will become Schwab assets soon.