>$250,000 portfolios with Vanguard? Insurance?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
ghudson
Posts: 127
Joined: Wed Nov 12, 2014 4:33 pm

>$250,000 portfolios with Vanguard? Insurance?

Post by ghudson » Thu Mar 19, 2015 1:33 pm

Since only $250,000 is insured by FDIC, then how do most of you handle the investment of your large >$250,000 portfolios with Vanguard?

John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by John3754 » Thu Mar 19, 2015 1:35 pm

FYI, investment accounts such as those at Vanguard aren't covered by FDIC insurance at all, not a single cent.

nordlead
Posts: 739
Joined: Thu Sep 12, 2013 9:09 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by nordlead » Thu Mar 19, 2015 1:35 pm

Investments (ETF's, individual stocks, mutual funds, etc...) are not FDIC insured anywhere.

FDIC insurance only covers bank deposits.

https://www.fdic.gov/deposit/deposits/

User avatar
cheese_breath
Posts: 8077
Joined: Wed Sep 14, 2011 7:08 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by cheese_breath » Thu Mar 19, 2015 1:52 pm

We diversify our investments. It's not guaranteed insurance, but it's worked pretty well so far.
The surest way to know the future is when it becomes the past.

livesoft
Posts: 62872
Joined: Thu Mar 01, 2007 8:00 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by livesoft » Thu Mar 19, 2015 1:56 pm

I just lose money right along with everybody else.
Wiki This signature message sponsored by sscritic: Learn to fish.

member
Posts: 49
Joined: Sat Jul 05, 2014 2:01 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by member » Thu Mar 19, 2015 2:04 pm

Now I'm worried.

User avatar
cheese_breath
Posts: 8077
Joined: Wed Sep 14, 2011 7:08 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by cheese_breath » Thu Mar 19, 2015 2:07 pm

member wrote:Now I'm worried.
Not worried enough I hope to fall for a sales pitch promising you can participate when the market goes up and don't lose one red cent when it goes down.
The surest way to know the future is when it becomes the past.

Grt2bOutdoors
Posts: 19487
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Grt2bOutdoors » Thu Mar 19, 2015 2:26 pm

AlexB wrote:Since only $250,000 is insured by FDIC, then how do most of you handle the investment of your large >$250,000 portfolios with Vanguard?
Investments are not insured by the government or FDIC. How do we protect it? Diversification.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

toto238
Posts: 1880
Joined: Wed Feb 05, 2014 2:39 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by toto238 » Thu Mar 19, 2015 2:35 pm

AlexB wrote:Since only $250,000 is insured by FDIC, then how do most of you handle the investment of your large >$250,000 portfolios with Vanguard?
The FDIC does not insure anything but bank deposits. So checking accounts, savings accounts, CDs. That's basically it for the most part.

The key is that these are investments where the principal is always constant and never varies. The interest they will give you is pretty close to 0 right now. At best, a CD can give you maybe 3% right now, but it would have to be a 5 or 10 year commitment. A high yield savings account can get you about 1% right now. But that's it if you FDIC insurance.

If you want more than that kind of growth, you're not going to get it in an FDIC insured account. You have to take market risk with stocks/bonds. Your principal will fluctuate.

If you're not comfortable taking market risk, that's fine. You can use FDIC insured savings accounts and CDs to save. But you're going to have to save a lot more money in order to reach the same goals, since your savings will have a much lower growth rate.

Spirit Rider
Posts: 9135
Joined: Fri Mar 02, 2007 2:39 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Spirit Rider » Thu Mar 19, 2015 2:50 pm

There is no insurance protection against the value of your investments. Just a diversified portfolio and time.

However, mutual funds are independent trusts and are not assets of Vanguard. Also, Vanguard brokerage accounts have SIPC $500K protection for cash ($250K limit) and securities.

leod
Posts: 596
Joined: Tue Sep 22, 2009 2:54 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by leod » Thu Mar 19, 2015 2:58 pm

livesoft wrote:I just lose money right along with everybody else.
:D i'll lose lesser money then

User avatar
dm200
Posts: 18886
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by dm200 » Thu Mar 19, 2015 3:25 pm

Vanguard brokered CDs are all from FDIC insured banks - but that limit is $250,000 (possibly able to be multiplied for some individuals with ownership differences).

Credit unions insured by NCUA have the identical level of government backing as FDIC for banks. Almost all US credit unions are NCUA insured, but about 200 credit unions in 9 state (state charters) are allowed to AND have chosen to be privately insured.

edge
Posts: 3335
Joined: Mon Feb 19, 2007 7:44 pm
Location: Great Falls VA

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by edge » Thu Mar 19, 2015 4:47 pm

I'm not sure I understand. What event do you think you need insurance against?

asha1001
Posts: 39
Joined: Thu Mar 06, 2014 10:43 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by asha1001 » Thu Mar 19, 2015 4:54 pm

Brokerage accounts are not insured by FDIC, as mentioned above. However, they are insured by SIPC, upto 500k, which includes upto $250k of cash. Generally brokerages like Vanguard are nor taking risk with their capital so the chance of them getting into trouble is low, however SIPC protects you in case you decide to give your money to a Bernie Madoff wanna be.

toto238
Posts: 1880
Joined: Wed Feb 05, 2014 2:39 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by toto238 » Thu Mar 19, 2015 5:15 pm

asha1001 wrote:Brokerage accounts are not insured by FDIC, as mentioned above. However, they are insured by SIPC, upto 500k, which includes upto $250k of cash. Generally brokerages like Vanguard are nor taking risk with their capital so the chance of them getting into trouble is low, however SIPC protects you in case you decide to give your money to a Bernie Madoff wanna be.
I don't think Madoff had SIPC protection. Basically SIPC is there to protect if for some reason the brokerage goes bankrupt and somehow the assets you're entitled to aren't there anymore. For instance, if they opened up the 500 index fund and found that it didn't actually have those stocks in it that it was supposed to. It would basically be outright fraud on Vanguard's part that SIPC would be protecting you from.

I suppose there's a possible scenario where if Vanguard took securities lending too far, it could find itself in a situation where they need SIPC insurance without any fraudulent occuring. But Vanguard seems to be very conservative with their securities lending.

User avatar
Toons
Posts: 13044
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Toons » Thu Mar 19, 2015 5:26 pm

You mean I don't get all that money back I lost investing in sector funds :happy :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

OldLearner
Posts: 65
Joined: Tue May 06, 2014 11:59 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by OldLearner » Thu Mar 19, 2015 10:38 pm

toto238 wrote:I don't think Madoff had SIPC protection.
He did. http://www.sipc.org/news-and-media/news ... s/20140325

Alex Frakt
Founder
Posts: 10853
Joined: Fri Feb 23, 2007 1:06 pm
Location: Chicago
Contact:

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Alex Frakt » Thu Mar 19, 2015 11:01 pm

http://www.sipc.org/for-investors/what-sipc-protects
SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Most customers of failed brokerage firms when assets are missing from customer accounts are protected. There is no requirement that a customer reside in or be a citizen of the United States. A non-U.S. citizen with an account at a brokerage firm that is a member of SIPC is treated the same as a resident or citizen of the United States with an account at a brokerage firm that is a member of SIPC.

SIPC does not protect against the decline in value of your securities. SIPC does not protect individuals who are sold worthless stocks and other securities. SIPC does not protect claims against a broker for bad investment advice, or for recommending inappropriate investments...
Vanguard is a member of the SIPC. In addition, the actual stocks and other securities that are in Vanguard mutual funds (which include their ETFs) are held in custodial accounts by other institutions. Even if Vanguard went bankrupt, those assets could not be tapped to pay its creditors. This is all covered in great detail in this blog post by a regular contributor to this site: http://www.obliviousinvestor.com/is-it- ... companies/

ghudson
Posts: 127
Joined: Wed Nov 12, 2014 4:33 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by ghudson » Fri Mar 20, 2015 12:16 pm

Interesting. I did not know that a Vanguard account wasn't covered by FDIC.

To answer someone's question, I was only thinking it'd be insured against some kind of catastrophe... not insured against losses from a bear market :D

Thanks for your replies, they've helped me get a better understanding of things.

edge
Posts: 3335
Joined: Mon Feb 19, 2007 7:44 pm
Location: Great Falls VA

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by edge » Sat Mar 21, 2015 1:10 am

I am not aware of property and casualty insurance for brokerage account balances :-)

joer1212
Posts: 429
Joined: Sun Feb 17, 2013 1:55 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by joer1212 » Sun Jun 24, 2018 12:33 pm

So, how then do billionaires insure their money? 500k insurance is nothing.

User avatar
dm200
Posts: 18886
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by dm200 » Sun Jun 24, 2018 12:56 pm

joer1212 wrote:
Sun Jun 24, 2018 12:33 pm
So, how then do billionaires insure their money? 500k insurance is nothing.
I suspect they are smart enough (or know smart folks) to make sure they hold deposits in very, very safe banks.

User avatar
welderwannabe
Posts: 827
Joined: Fri Jun 16, 2017 8:32 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by welderwannabe » Sun Jun 24, 2018 1:56 pm

joer1212 wrote:
Sun Jun 24, 2018 12:33 pm
So, how then do billionaires insure their money? 500k insurance is nothing.
TBills, money markets that invest in TBills, Vanguard Prime Money Market admiral ($5M minimum).

I am not a billionaire so I don't know for sure, but my guess is that they don't hold as much cash as we may think. Thats how they got to be billionaires.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

2015
Posts: 2163
Joined: Mon Feb 10, 2014 2:32 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by 2015 » Sun Jun 24, 2018 3:11 pm

We're much more likely to lose our own money than as a result of anything Vanguard does or does not do. Investors piddling with their PF's is what iatrogenics is to health care.

2015
Posts: 2163
Joined: Mon Feb 10, 2014 2:32 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by 2015 » Sun Jun 24, 2018 3:11 pm

We're much more likely to lose our own money than as a result of anything Vanguard does or does not do. Investors piddling with their PF's is what iatrogenics is to health care.

jalbert
Posts: 3911
Joined: Fri Apr 10, 2015 12:29 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by jalbert » Sun Jun 24, 2018 3:25 pm

ghudson wrote:
Thu Mar 19, 2015 1:33 pm
Since only $250,000 is insured by FDIC, then how do most of you handle the investment of your large >$250,000 portfolios with Vanguard?
The Vanguard Treasury Money Market fund is backed by the full faith and credit of the same sovereign govt that backs FDIC and NCUA insurance for deposit accounts. It also takes essentially no interest rate risk. It is thus as safe as an FDIC-insured deposit account (maybe even slightly safer).

All other Vanguard mutual funds take some risk— minimal additional risk in the case of, say the Federal Money Market fund, but a breathtaking level of risk for some funds like equity sector funds. Vanguard rates the risk on a scale of 1 to 5.

Diversification may be designed by considering all types of known risk and holding some assets that do well during each risk event, so that the overall portfolio has moderated exposure to any one of the risks. There are no guarantees of course.

You can also get FDIC-insured brokered CDs through Vanguard Brokerage Services or other brokers. These can be selected from different banks so that you get the insurance limit for each issuing bank.
Risk is not a guarantor of return.

User avatar
Sheepdog
Posts: 5191
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Sheepdog » Sun Jun 24, 2018 3:49 pm

Note that this thread was from 2015, NOT this year!
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by VaR » Sun Jun 24, 2018 6:25 pm

nordlead wrote:
Thu Mar 19, 2015 1:35 pm
Investments (ETF's, individual stocks, mutual funds, etc...) are not FDIC insured anywhere.

FDIC insurance only covers bank deposits.

https://www.fdic.gov/deposit/deposits/
It's worth noting that you "need" deposit insurance with a bank deposit account because you are loaning that money to the bank. If the bank goes bankrupt, you become a creditor - though with FDIC insurance the FDIC will make you whole the next day (up to the maximum coverage).

If your fund operating company were to go bankrupt, that wouldn't affect the ownership of the underlying assets in the fund since those are held in trust for you by the custodian. Note that the custodian doesn't actually hold ownership of the assets that it holds in trust for you either, so you're not at risk if the custodian goes bankrupt either.

I believe most of this is covered in this previous thread:
What happens if the fund provider goes bankrupt?

User avatar
welderwannabe
Posts: 827
Joined: Fri Jun 16, 2017 8:32 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by welderwannabe » Wed Jun 27, 2018 11:32 am

VaR wrote:
Sun Jun 24, 2018 6:25 pm

It's worth noting that you "need" deposit insurance with a bank deposit account because you are loaning that money to the bank. If the bank goes bankrupt, you become a creditor - though with FDIC insurance the FDIC will make you whole the next day (up to the maximum coverage).
A money market fund invests in loans as well, so there isn't a ton of difference except that a money market is more diversified.

The money markets invest in CDs, treasury bills, commercial paper, Repurchase Agreements etc. They are all fundamentally loans of one type or another.

Not sure if you were implying that you didn't need insurance with a MM because it wasn't loans or not, but I just wanted to clarify.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

User avatar
dm200
Posts: 18886
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by dm200 » Wed Jun 27, 2018 11:51 am

A, significant in my opinion, difference between a MM account (at a bank or credit union) and a MM Fund is the amunt of required "reserves". A MM Fund does not have the required "cushion" of institutional "reserves" that is required by a bank or credit union (typically 6-12%).

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by VaR » Thu Jun 28, 2018 12:25 am

welderwannabe wrote:
Wed Jun 27, 2018 11:32 am
VaR wrote:
Sun Jun 24, 2018 6:25 pm

It's worth noting that you "need" deposit insurance with a bank deposit account because you are loaning that money to the bank. If the bank goes bankrupt, you become a creditor - though with FDIC insurance the FDIC will make you whole the next day (up to the maximum coverage).
A money market fund invests in loans as well, so there isn't a ton of difference except that a money market is more diversified.

The money markets invest in CDs, treasury bills, commercial paper, Repurchase Agreements etc. They are all fundamentally loans of one type or another.

Not sure if you were implying that you didn't need insurance with a MM because it wasn't loans or not, but I just wanted to clarify.
What I'm implying is that you don't need insurance against the case of Vanguard going bankrupt. You're not loaning your money to Vanguard. Your money is invested in securities held in trust for you by a custodian. It's a totally different structure/product. I think I made that clear.

The question of the risks and safety of the underlying securities that the mutual fund invests in is a separate concern and specific to the fund that you choose. For example, if you invest in the Vanguard Federal Money Market Fund, the fund invests your money in U.S. Government securities. This means for all practical purposes, you don't have any credit risk (risk of default). On the other hand, if you invest in equities, you have a lot of market risk.

But I don't think the OP was asking about all the risks of the underlying securities in the portfolio, but rather the risk of having "your large >$250,000 portfolios with Vanguard".

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by VaR » Thu Jun 28, 2018 12:57 am

dm200 wrote:
Wed Jun 27, 2018 11:51 am
A, significant in my opinion, difference between a MM account (at a bank or credit union) and a MM Fund is the amunt of required "reserves". A MM Fund does not have the required "cushion" of institutional "reserves" that is required by a bank or credit union (typically 6-12%).
Are you using the existence of bank reserves on deposits to imply that, in excess of FDIC insurance, that bank deposit accounts are safer than all money market mutual funds? Because they are not.

If I deposit $1000 at a (U.S.) bank, they have to keep $100 in reserves. They are allowed to use the other $900 for anything they want, including lending it to other individuals or corporations. In the past and perhaps in the future, they will be able to use it to fund their proprietary trading desks. The $100 held in reserve doesn't let me sleep at night. It's only the 100% FDIC insurance that lets me sleep at night.

The Vanguard Federal Money Market Fund invests in U.S. government securities that have the same backing as FDIC insurance itself - the full faith and credit of the U.S. government.

Other Vanguard Money Market funds are a longer discussion.

User avatar
Rainier
Posts: 1357
Joined: Thu Jun 14, 2012 5:59 am

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Rainier » Thu Jun 28, 2018 7:08 am

edge wrote:
Sat Mar 21, 2015 1:10 am
I am not aware of property and casualty insurance for brokerage account balances :-)
That's exactly what there is. Beyond SIPC brokerages like Fidelity have their own insurance to guard against theft or other losses not associated with market value.

Most people assume FDIC protects your bank account cash from a bank robbery or a fire....nope. Banks have their own insurance for that, just like a homeowner's policy. FDIC is for insolvency, not theft.

User avatar
dm200
Posts: 18886
Joined: Mon Feb 26, 2007 2:21 pm
Location: Washington DC area

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by dm200 » Thu Jun 28, 2018 9:17 am

Rainier wrote:
Thu Jun 28, 2018 7:08 am
edge wrote:
Sat Mar 21, 2015 1:10 am
I am not aware of property and casualty insurance for brokerage account balances :-)
That's exactly what there is. Beyond SIPC brokerages like Fidelity have their own insurance to guard against theft or other losses not associated with market value.
Most people assume FDIC protects your bank account cash from a bank robbery or a fire....nope. Banks have their own insurance for that, just like a homeowner's policy. FDIC is for insolvency, not theft.
Not completely true. In this respect, banks and credit unions are very similar. FDIC (banks) and NCUA (credit unions) federal insurance protects depositors from the failure of the bank or credit union - whatever the cause. Huge (insider) fraud or embezzlements, uninsured losses from robbery or fire or earthquakes, gross mismanagement, economic factors, etc. - all can cuase the failure of a credit union or bank.

User avatar
nisiprius
Advisory Board
Posts: 37051
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by nisiprius » Thu Jun 28, 2018 10:35 am

SIPC insurance is interesting and often not well understood. First, the good news: Vanguard and I think every big brokerage carries additional private insurance. Vanguard, for example, says:
Information about account protection
To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from certain insurers at Lloyd's of London and London Company Insurers for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash.
Now, the bad news. What SIPC insurance protects against is something very specific. I like to think of it as "brokerage statement insurance." It insures that if you order Vanguard to buy you 100 shares of GE stock, and they send you a confirmation, and your statement shows 100 shares of GE stock in your account... then Vanguard has, really and truly, bought 100 shares of GE stock and has accounting control that show that 100 of the GE shares they hold are yours.

As opposed to taking your money, spending it on champagne for the company picnic, and sending you a false confirmation slip and a phony statement.

Or, losing shares. In the bad old pre-SIPC days there were actual cases of brokerages buying stock, not keeping track of the physical stock certificates, and literally not being able to find them.

But that is all that it guarantees: that the brokerage is actually holding, in your name, the specific securities you've bought.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
nisiprius
Advisory Board
Posts: 37051
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by nisiprius » Thu Jun 28, 2018 10:37 am

joer1212 wrote:
Sun Jun 24, 2018 12:33 pm
So, how then do billionaires insure their money? 500k insurance is nothing.
They're big boys and they take care of themselves. They might be able to buy some kind of private insurance. They might invest it in Treasury bills which are very safe. They might be careful about checking out and monitoring the financial strength of the banks they use.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
TheTimeLord
Posts: 5284
Joined: Fri Jul 26, 2013 2:05 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by TheTimeLord » Thu Jun 28, 2018 10:40 am

nisiprius wrote:
Thu Jun 28, 2018 10:37 am
joer1212 wrote:
Sun Jun 24, 2018 12:33 pm
So, how then do billionaires insure their money? 500k insurance is nothing.
They're big boys and they take care of themselves. They might be able to buy some kind of private insurance. They might invest it in Treasury bills which are very safe. They might be careful about checking out and monitoring the financial strength of the banks they use.
Maybe with a family office?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

talzara
Posts: 632
Joined: Thu Feb 12, 2009 7:40 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by talzara » Thu Jun 28, 2018 12:12 pm

Sheepdog wrote:
Sun Jun 24, 2018 3:49 pm
Note that this thread was from 2015, NOT this year!
The thread is more important in 2018 than in 2015, since Vanguard is pushing people to convert mutual fund accounts to brokerage accounts.

Brokerage accounts carry additional risk that mutual fund accounts don't have. The SIPC coverage only goes up to $500,000.

talzara
Posts: 632
Joined: Thu Feb 12, 2009 7:40 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by talzara » Thu Jun 28, 2018 12:20 pm

VaR wrote:
Thu Jun 28, 2018 12:25 am
What I'm implying is that you don't need insurance against the case of Vanguard going bankrupt. You're not loaning your money to Vanguard. Your money is invested in securities held in trust for you by a custodian. It's a totally different structure/product. I think I made that clear.
In a Vanguard brokerage account, the securities are registered to Vanguard Brokerage Services. You are not the registered owner. You have a claim on Vanguard as the beneficial owner of the securities. That's why SIPC insurance is needed for brokerage accounts.

It's still safer than a bank, though. A bank will lend out 90% of the money. VBS will only lend out your securities if you take a margin loan.

talzara
Posts: 632
Joined: Thu Feb 12, 2009 7:40 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by talzara » Thu Jun 28, 2018 12:31 pm

nisiprius wrote:
Thu Jun 28, 2018 10:35 am
SIPC insurance is interesting and often not well understood. First, the good news: Vanguard and I think every big brokerage carries additional private insurance. Vanguard, for example, says:
Information about account protection
To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from certain insurers at Lloyd's of London and London Company Insurers for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash.
This excess insurance has an aggregate limit of $250 million. If just 10,000 investors with excess balances lose the contents of their account, then the $250 million works out to only $25,000 per investor.

I agree that SIPC insurance is often misunderstood. It only covers a specific set of circumstances.

If Vanguard Small-Cap loses 5% of its net asset value because its counterparties can't return borrowed shares, then its shareholders will lose 5%. The SIPC will not help you because the losses had nothing to do with the brokerage account.

If you carry a margin balance and lose 5% because the counterparty failed to return the shares, then the SIPC will not help you either. Once the shares have been loaned out, they lose SIPC protection.

However, if Vanguard Brokerage Services only has 95% of the assets that it's supposed to have, then the SIPC will replace the 5% that's missing from your account.

User avatar
Sheepdog
Posts: 5191
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by Sheepdog » Thu Jun 28, 2018 2:44 pm

talzara wrote:
Thu Jun 28, 2018 12:12 pm
Sheepdog wrote:
Sun Jun 24, 2018 3:49 pm
Note that this thread was from 2015, NOT this year!
The thread is more important in 2018 than in 2015, since Vanguard is pushing people to convert mutual fund accounts to brokerage accounts.

Brokerage accounts carry additional risk that mutual fund accounts don't have. The SIPC coverage only goes up to $500,000.
That is correct, but my point was that people were answering the o.p.'s original question and that person is gone from this question from 3 years ago so their comments were probably not reaching him/her since o.p.'s last comment of any kind on Bogleheads was in July 2017. That's all.
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

edge
Posts: 3335
Joined: Mon Feb 19, 2007 7:44 pm
Location: Great Falls VA

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by edge » Sun Jul 01, 2018 1:41 pm

I meant insurance against market risk.
Rainier wrote:
Thu Jun 28, 2018 7:08 am
edge wrote:
Sat Mar 21, 2015 1:10 am
I am not aware of property and casualty insurance for brokerage account balances :-)
That's exactly what there is. Beyond SIPC brokerages like Fidelity have their own insurance to guard against theft or other losses not associated with market value.

Most people assume FDIC protects your bank account cash from a bank robbery or a fire....nope. Banks have their own insurance for that, just like a homeowner's policy. FDIC is for insolvency, not theft.

alex_686
Posts: 4030
Joined: Mon Feb 09, 2015 2:39 pm

Re: >$250,000 portfolios with Vanguard? Insurance?

Post by alex_686 » Sun Jul 01, 2018 1:58 pm

First, many brokerage firms carry addditional insurance on-top of SPIC. So check that out,

Second, SPIC insurance basically covers any loss done due to a failure of broker's controls. And that is rare. I can only think of one case in 30 years where that happened. Client's assets are supposed to be "segregated" from the firm's assets. If you use margin there can be some commingling of assets but that is limited. This is regulated and audited, both internally, externally, and by regulators. I have had front row seats to numerous brokerage collopases and thhe impact to clients ranged was fairly minniumal and did not require the SPIC to bail anybody out.

Here is a recent and rare case where internal controls slipped.
viewtopic.php?t=252497

Post Reply