Will Your Brokerage Account Be Wiped Out When the Market Crashes?
Earlier this week, I had dinner with three women I’ve known since I was a kid. Somehow, we got on the subject of retirement, which led to a conversation about investments. One of the women reported that her husband wants to pull all of their money out of investment accounts because he’s sure the market is about to crash.
Making an informed decision about what’s likely to happen to your investments requires information in black and white, uncolored by anxiety or fear. The more accurate information you have at your disposal, the better equipped you are to make rational, balanced decisions. Here is some information to help guide you away from fear and into informed decision-making.
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What happens to your brokerage account if the market crashes?
If you have a diversified portfolio, it’s possible that some of your investments won’t be affected, even as others decline in value. That’s why it’s so important not to put all your financial eggs in one basket. The more you diversify the sectors you invest in — and the types of investments you put money into — the better your chances are of coming out of a crash reasonably unscathed. As some sectors drop, others can hold their own or even make gains.
Let’s say you purchased 100 shares of Company A at $20 per share. Your investment is worth $2,000. If the stock price falls to $10 per share, your investment is suddenly worth $1,000. But you haven’t really lost anything. You only lose money if you sell at that point. If it appears that Company A is going through a rough patch and will recover, you can make out like a bandit by buying up more shares while the price is low.
Will a crash impact your brokerage account? Probably, but as long as you’re invested in solid companies and plan to ride out the natural ups and downs of the market, there’s no reason to be afraid.
What if your brokerage firm goes under?
If things get bad and your brokerage firm closes its doors, you have government-provided insurance to help you recover assets. Securities Investor Protection Corporation (SIPC) will cover up to $500,000 of securities or $250,000 of cash held at a brokerage firm.
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