When you lose investment money, find out how the SIPC helps you get it back. Get the Money Girl book at http://MoneyGirlBook.com
Money Girl
328 MG Is There Insurance Against Losing Investments?
Hey, Fidelity, what's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on US stocks and ETFs. Hm, that's music to my ears. I can only talk. [MUSIC] Investing involved risk, including risk of loss, zero account fees apply to retail brokerage accounts only. Sell or assessment fee not included, a limited number of ETFs are subject to a transaction-based service fee of $100. See full list at Fidelity.com/commissions. Fidelity brokerage services LLC, member NYSE SIPC. [MUSIC] If the new Chicken Big Mac at McDonald's looks like a Big Mac, has sweet buns and sauce like a Big Mac, but has two chicken patties, then it's not not a Big Mac. I participate in McDonald's for a limited time. [MUSIC] Hi, everyone. Thanks for listening to another weekly edition of the Money Girl podcast. [MUSIC] I'm Laura Adams, author of the award-winning book Money Girl Smart Moves to Grow Rich. Before we get started, I have a quick announcement. I'm excited to tell you about another new book from QDT's own Modern Manner's Guy, Richie Freeman. It's called Reply All and Other Ways to Tank Your Career. Richie interviews dozens of CEOs, entrepreneurs, celebrities and tastemakers to help you navigate every sticky situation in the office. Reply All is available in paperback, CD, e-book and audio book. Online or from your favorite bookstore, so get your copy today. One of the most uncomfortable things about investing is that it involves risk. We all want to make money, but no one likes the idea of potentially losing some or all of it. However, there are limited protections that investors have against loss. In this episode, I'll answer a listener question and tell you what systems are in place to keep your investment safe up to certain limits. A Money Girl reader named Julie asks, I'm looking for insurance to protect my investments from losing value. I've heard that the FDIC protects your money when a bank goes out of business. Is there something similar for retirement accounts? Well, before we talk about investments, let's briefly review the FDIC coverage that Julie mentioned in her question. FDIC is short for Federal Deposit Insurance Corporation, which is an independent agency of the federal government. It was created by Congress in 1933 as a response to thousands of bank failures that occurred during the Depression in the late 1920s and early 1930s. The FDIC isn't funded by taxpayers, but by premiums that banks pay. An institution that has FDIC insurance covers deposits up to $250,000 per depositor. This coverage applies to each ownership account type you might have, such as single ownership, which is just in your name, jointly owned accounts, and trust accounts. However, the FDIC only ensures deposits, such as money in checking, money market deposit accounts, and CDs. It never ensures investments like stocks, bonds, mutual funds, or annuities, even if you buy them through an FDIC insured institution. Although FDIC insured bank customers can rest easy, knowing that their deposits will be returned up to certain limits, no matter why an institution fails, there's no similar insurance for investors. However, you can get some relief if your stock broker or mutual fund family closes due to financial trouble and your money is missing. The agency that comes to the rescue when your brokerage goes bust is called the Securities Investor Protection Corporation, or SIPC. It's a nonprofit corporation that was created by Congress in 1970 to cover the losses of investors within certain limits. The SIPC works to return your missing cash, stock, or other securities when your brokerage goes out of business and still owes you money. Their website at SIPC.org says that since December 2008, they've returned $9.32 billion to the victims of Ponzi schema Bernie Madoff. This is more than 53% of the approximately $17.5 billion that went missing. 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The SIPC acts as the trustee or works with an independent court-appointed trustee to recover investor funds. They oversee the recovery process and ensure that customer claims are paid fairly on a pro-rata basis. If they can't fully satisfy all investor claims for missing money, the SIPC has a reserve account that can be used to make up the difference up to certain limits. The reserve is funded by member brokers and it can be used to supplement each investor's losses for up to $500,000, which includes a maximum of $250,000 for cash claims. But the SIPC doesn't protect every type of investment. They generally don't work to return futures contracts, limited partnerships, or annuities that aren't registered with the U.S. Securities and Exchange Commission, nor do they ever cover loss that's the result of market volatility. When you choose an investment on your own or through a financial planner or stock broker, make sure that the company offers SIPC coverage. Only brokerages that are members of the SIPC can offer its protection to customers. The SIPC website has a member database you can use to verify that your investment company is covered. I'll include a link in the transcript for this show on the MoneyGirl page at quickanddirtytips.com. To sum up, the SIPC does not work like the FDIC because it does not ensure invested funds. The SIPC helps investors when their money is stolen if their brokerage goes out of business, but they don't bail out investors from bad investments. There simply is no guarantee against losses or fraud in the investment marketplace. Different types of investments come with different amounts of risk. To be an investor means you understand these inherent risks and are willing to take the gains with the losses. For more money tips and advice, be sure to follow me on Facebook, Twitter, or Google+, also sign up for the free MoneyGirl newsletter for exclusive tips. You'll find links to everything I've mentioned on the MoneyGirl page at quickanddirtytips.com. Just look for episode #328 called "Is there insurance against losing investments?" I'm glad you're listening to Ching. That's all for now. Courtesy of MoneyGirl, your guide to our richer life. If the new Chicken Big Mac at McDonald's looks like a Big Mac, has sweet buns and sauce like a Big Mac, but has two chicken patties, then it's not not a Big Mac. I participate in McDonald's for a limited time. At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think. With Capella University, learn more at Capella.edu. [BLANK_AUDIO]