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Subject:  Re: how secure is the money in a 401k? Date:  6/2/2013  2:31 PM
Author:  pauleckler Number:  25037 of 26127

Events like 911 or Sandy remind us that major unanticipated events could conceivable shut down major players on Wall Street, for example. One would hope their records have good backup systems off site making it possible to reconstruct their records within hours if not sooner. But did they think big enough? What about a major earthquake or nuclear war? Ouch.

Yes, SIPC protects your assets in a brokerage account. At some point some level of diversification adds peace of mind and gives you more choices in an emergency. Let's hope the need does not arise.

Runs on the bank are not usually a problem for brokerage firms or mutual fund companies like Fidelity. Cash withdrawals force them to sell the stock in their funds. And that results in falling prices for mutual fund shares.

The risk for brokers comes mostly from short selling. People borrow shares from the broker to sell short. They are sold under a margin call if value falls below minimums, and short seller is responsible for any losses. But in a market crash that wipes out the short seller, can they sell soon enough and can they collect losses from the short seller? SIPC insures your assets in this case and protects from disappearance of your shares.

SIPC has specified limits for the amount it insures, but many broker carry additional private insurance. The limit of that insurance is a good question to ask your broker.
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