Is your money more at risk at a Schwab, Ameritrade, or IB, whose stock could theoretically go to zero, than at say a Vanguard or Fidelity, which are not publicly traded? If so, then would simply keeping an eye on the price of the stock give you enough lead time to get out in the worst case scenario?
Publicly Traded Firms and Portfolio Risk
- Thread starter tomahawk
- Start date
Quote from hoodooman:
That scenario has me worried right now.
worried in what sense? That you could lose some or all of your money? That is why there is SIPC. If you have more than the threshold amts, then you may want to diversify your holdings. You don't want to become like the Madoff victims who put ALL their eggs in one basket.
Posts: 522
07-27-09 06:20 AM
"Is your money more at risk at a Schwab, Ameritrade, or IB, whose stock could theoretically go to zero, than at say a Vanguard or Fidelity, which are not publicly traded? If so, then would simply keeping an eye on the price of the stock give you enough lead time to get out in the worst case scenario?"
quote by tomahawk
Even so your money is guaranteed by SIPC upto $500k.
Assuming you have more than that, spilt it up between a
few brokerages.
07-27-09 06:20 AM
"Is your money more at risk at a Schwab, Ameritrade, or IB, whose stock could theoretically go to zero, than at say a Vanguard or Fidelity, which are not publicly traded? If so, then would simply keeping an eye on the price of the stock give you enough lead time to get out in the worst case scenario?"
quote by tomahawk
Even so your money is guaranteed by SIPC upto $500k.
Assuming you have more than that, spilt it up between a
few brokerages.
Of course spreading it around for less exposure to any individual firm is the obvious answer.
My problem is that I want to actively manage my retirement portfolio (IRAs), adjusting things sometimes as frequently as monthly. My first choice would be to use ETFs and trade through IB, but I already have my daytrading capital there, which would leave me overexposed to IB failure risk. The alternatives - Vanguard, Fidelity, etc. - charge an arm and a leg for commissions, and if you try to do it through mutual funds you run into redemption fees for holding less than 60 days.
So I'm stuck with the dilemma of having the majority of my capital at risk from some kind of disaster at IB, or paying up for the "security" of a bigger (non-public) name in the form of ridiculous fees, merely to implement a reasonably hands-on investment strategy.
Regarding SIPC, I think this has come up before, but at times one may want to be in all or mostly cash (or cash fund equivalent), potentially putting one over the $100k threshold for protection, even if spread across 3-4 firms.
My problem is that I want to actively manage my retirement portfolio (IRAs), adjusting things sometimes as frequently as monthly. My first choice would be to use ETFs and trade through IB, but I already have my daytrading capital there, which would leave me overexposed to IB failure risk. The alternatives - Vanguard, Fidelity, etc. - charge an arm and a leg for commissions, and if you try to do it through mutual funds you run into redemption fees for holding less than 60 days.
So I'm stuck with the dilemma of having the majority of my capital at risk from some kind of disaster at IB, or paying up for the "security" of a bigger (non-public) name in the form of ridiculous fees, merely to implement a reasonably hands-on investment strategy.
Regarding SIPC, I think this has come up before, but at times one may want to be in all or mostly cash (or cash fund equivalent), potentially putting one over the $100k threshold for protection, even if spread across 3-4 firms.
The thing about IB is that they have increased protection thru a Llyod's insurance policy - cash to 1MM and securities to 30MM.
The thing about SIPC and IB's additional protection is that it is to cover anything that is not 100% returned to the owner. And unlike the above mentioned Madoff, your funds are not co-mingled in another trading account with fake statements. So even in the event of an IB failure, accounts would be usually (semi)seemlessly transfered to another brokerage so there would be not interuption.
The thing that should cause anyone concern is if your money is held in a futures account as there is no insurance protection for those funds.
The thing about SIPC and IB's additional protection is that it is to cover anything that is not 100% returned to the owner. And unlike the above mentioned Madoff, your funds are not co-mingled in another trading account with fake statements. So even in the event of an IB failure, accounts would be usually (semi)seemlessly transfered to another brokerage so there would be not interuption.
The thing that should cause anyone concern is if your money is held in a futures account as there is no insurance protection for those funds.
I was under the impression that the cash in a futures account (regular margin acct with futures permission) is swept into an SIPC-insured account nightly (I don't hold futures overnight), but I could be wrong. I am aware of the Lloyd's protection, but thanks for pointing out the other details.
I'd love to hear from just ONE trader who holds both significant retirement funds and trading capital at IB.
At IB, yes. All availble funds are swept into your SIPC protected account. But not other futures brokers. (I think MBT has futures and equities in seperate accounts, but am not sure). When you trader with a futures broker (MF Global, Advantage, Global, Dorman, etc) you do not have insurance protection on your funds unless they took out a policy of their own accord.
What type of disaster do you think could hit IB and wipe out their $4.64 billion in capital and start using the $9.04 billion in customer cash? IB only has two businesses, market making and brokerage. In a poor quarter IB had pretax profits of $141.5 million from market making and $62.0 million from brokerage.
I have significant retirement funds at IB purposely because I believe IB to be the lowest risk broker with reasonable commissions. I am not aware of a brokerage firm with a lower risk profile than IB has. I have a futures account at a higher risk broker because IB's futures commissions are too high for regular trading.