What's the SIPC?

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Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

The Securities Investor Protection Corporation, or SIPC, is the reason that you can feel confident that you won’t lose your shirt if your investment company goes belly up.

A nonprofit group created by the Securities Investor Protection Act of 1970, the SIPC is a close cousin of the Federal Deposit Insurance Corporation, those folks who guarantee that you won’t lose the money you deposited even in the event of a bank failure. Here’s how it works: The member firms of the SIPC — which include virtually every legitimate investment company in America — fund the SIPC from their corporate coffers. And those funds serve to protect against the loss of cash and securities at what the SIPC describes as a “financially troubled SIPC-member brokerage firm.” (Clients who kept their investments with Lehman Brothers, which went belly up in 2008, represent some recent, grateful beneficiaries of the SIPC.) If an SIPC-member brokerage firm goes bankrupt — or is otherwise financially troubled — you’re totally protected up to $500,000 for the value of your securities, though only $250,000 of cash is covered.

But be aware that there are also a few financial instruments the SIPC won’t cover, like commodities and futures. One very important distinction: the SIPC is not bonehead insurance and it does not protect you against lousy investment decisions, so should a company you invested in face failure or bankruptcy, that’s on you, as far as the SIPC is concerned. But as long as your brokerage is a member — Wealthsimple, for example — you needn’t worry about losing your first half million to a brokerage failure. So relax. You don’t even need to enroll to be protected by the SIPC. You’re automatically covered.

Last Updated November 14, 2017

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