How to protect your assets from bank or broker failures? Think about the financial crisis and how much wealth was destroyed. Read how to protect yourself and how a simple good solution could be.
How to protect your assets from bank or broker failures? Do you have a single or multiple stock portfolios?
Are you protected from difficulties with your bank or broker? The financial crisis has shown that customers who had their stock portfolio exclusively with Lehman Bank got a big problem.
In this article, we will show you how to protect yourself from these risks and how a practical implementation is as easy as possible.
We all invest our capital in order to increase it and profit from the returns. Those who have earned their capital themselves know how long it can take to accumulate a larger sum. Each of us is happy when his capital grows and its returns increase continuously.
However, when risks materialize and the opposite of appreciation happens, it is of course even more annoying when your capital is diminished by external factors and shrinks without your intervention.
The financial crisis of 2008/2009 shows how quickly this can happen and what dimensions these risks can reach.
During this period, around 100 banks went bankrupt in the USA. The Lehman Brother bankruptcy is the most prominent example. But other well-known banks such as Partners Bank, Colonial Bank from Alabama, Guaranty Bank from Texas, Hillcrest Bank, Flagship National Bank from Bradenton, First Federal Bank from Lake City, American United Bank from Lawrenceville in Georgia, Bank of Elmwood in Wisconsin, Riverview Community Bank from Otsego in Minnesota and First Dupage Bank in Illinois also failed.
Meanwhile, industry giants such as Citigroup and Bank of America survived with billions in aid from the U.S. government.
If you have your money at only one financial institution, you run a high cluster risk.
If you depend on the income and dividend payments of your shares, it is imperative that you spread your securities account over several banks or brokers. If the financial institution should really fail, the dividend payments will be cancelled for a long time. It may be a long period of time before you can access your capital again. If you have cash amounts higher than $100,000 in your account, the amounts higher than $100,000 may not be refunded in case of bank insolvency.
If you want to minimize risks, you have to diversify your portfolio and the location of the capital.
For most investors, diversification is nothing new. But practice shows that often only the individual stocks in the portfolio are diversified. The bank or broker default risk is usually ignored.
To minimize this risk, you don't have to find the one best bank or broker, but you have to find the best three or best five banks or brokers.
That sounds like a bit of work. And yes, investing can be easy, but if you want to do it professionally, you need to put in a little more work. Remember, it always pays to avoid risk with a good sense of proportion. As briefly described earlier, the past has shown that risks can become a reality in difficult times.
Spreading one's capital over several accounts reduces the risk of bank or broker failure.
It is up to each person to decide how much diversification to implement.
Basically, the following rules can be applied.
From $200,000 the deposit should be split between two banks/brokers.
From $500,000 the deposit should be split between three to four banks/brokers.
Cash holdings should not exceed $100,000.00 per bank/broker. Up to this amount, cash holdings are protected by insurance for each customer by default. Higher cash amounts could be lost in the event of bank insolvency.
Practical implementation with StockRover
Anyone who has diversified their share portfolio across several financial institutions can quickly lose track of everything.
But there is a perfect solution for this problem, which brings even more benefits.
StockRover offers a platform in which several stock portfolios can be queried and displayed together. The analysis of the entire portfolio can be done with just a few clicks.
The individual share portfolios are read out by their bank or broker. There are no functions for opening positions, which we find very good. Thus, it is a pure read connection and thus offers higher security.
StockRover's brokerage integration allows you to access all possible banks and broker accounts with your account data. Thereby banks and brokers like:
The evaluation and analysis options are numerous. The portfolio performance can be shown as absolute or relative performance to a benchmark.
In the detailed analysis, different key figures can be created for different time periods.
The most frequently used key figures are the absolute return, the
and many more can be evaluated.
Of course, these key figures can also be created for individual positions.
In the detailed view of the individual positions, you can quickly get an overview of which positions are performing particularly well or particularly poorly.
The Future Income function is a particularly interesting function. In this overview you can see the projected future dividend payments of your stock positions. Thus, you get a detailed overview of what income they will receive in the future.
Future Portfolio Performance Simulation
The Future Portfolio Performance Simulation is also a very interesting function, which projects your current portfolio performance into the future and simulates the development of the next years. So you can see if you can reach your goals for the future with your current portfolio performance.
The correlation matrix of the individual positions also shows you which stocks have a high degree of synchronization. This is particularly helpful if you want to set up your portfolio as diversified as possible. With this approach, too many stocks with a high correlation are a hindrance.
Trade Planning and Rebalancing
With the Trade Planning and Rebalancing function you can simulate possible portfolio changes for your portfolio. This allows you to optimally plan and implement the portfolio structure that suits you best.
For further simulations you can copy and modify individual portfolios.
Of course, a portfolio export function is also available, which transfers the portfolio structure to Excel.
Powerful Stock Screener
If you want to add new positions to your portfolio, StockRover offers one of the most powerful and easy-to-use stock screeners in the whole financial industry. You can use predefined screeners, and can also save your own screener definitions.
The Alerting function is a powerful tool that allows you to react to exceptional situations of your portfolio values. You can use it to permanently monitor stocks and their key figures. If values deviate from a predefined range, you can be informed by e-mail.
The portfolio overview provides a perfect overview of the current portfolio structure and its historical development at any time.
You can have a portfolio summary sent to you as a report by e-mail at regular intervals.
According to StockRover's own statement, portfolio management and the stock screener are its core competencies. StockRover will continue to focus on these functions in the future. Based on feedback from numerous customers, the StockRover platform is constantly being further developed.
For us, StockRover is the perfect portfolio management solution.
Two points are most important when investing money. In the first place is asset protection. In second place is wealth accumulation.
Those who do not protect themselves from risks may not be aware of the problems of past crises. Risks do not materialize every day. Just because everything goes well for years, you should not ignore dangers.
In practice, this means:
Spread your assets across multiple banks and brokers
Keep track of your assets with solutions like StockRover's
Don't forget the number one rule of wealth management!