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Things that we took for granted for decades, and even a year ago, appear to be in flux. And change brings fear – especially when it threatens our quality of life.
The U.S. economy has thrived, in part, because of a rock-solid legal system that enforces laws and contracts. When the values that support this system come under attack, we have genuine cause for concern.
For most of us, pensions have gone the way of the horse and buggy. The social safety net from government is stretched to the breaking point. Health care is the shuttlecock in a game of political badminton.
Most of us have concluded that it’s on each us to provide for a comfortable retirement – and that carries a lot of pressure, especially if you’re not a financial professional. We save; we invest; and we plan. But we’re still subject to the aforementioned rules. What if something goes awry? Are we protected?
In my opinion, some financial products – most notably annuities – have been marketed to a lot of people based on fear.
Annuities are very complicated products, with enough important variables to make one dizzy. They play into investors’ concerns that the market could drop suddenly, or that the customer might run out of savings before he or she dies.
Investors should be aware that not every investment product is insured. Along with life insurance and long-term care policies, annuities are backed by the financial strength of the underlying insurance company. If one of those companies goes belly up, its clients may be out of luck.
Before buying any of these products, be sure to check the credit ratings of the companies backing them (free registration is required to access this website).
Most people know that their bank deposits are insured by FDIC, the Federal Deposit Insurance Corp., an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system by: insuring deposits; examining financial institutions for safety, soundness and consumer protection; and managing receiverships.
If a bank fails, the FDIC covers customers’ bank balances (checking, savings, CDs) up to $250,000 per depositor. So, don’t leave more than a quarter of a million dollars in one place. (We should all have such problems.)
However, since banks have started pushing investment services in recent years, it’s worth noting that the FDIC does not cover investment securities.
Investments (stocks, bonds, mutual funds and the like) are covered by the Securities Investor Protection Corp. SIPC, a nonprofit, non-governmental membership corporation that oversees the liquidation of member broker-dealers that close. If that happens, SIPC protects the securities and cash in a brokerage account up to $500,000.
The $500,000 protection includes up to $250,000 protection for cash in a brokerage account per customer, but if you have that much cash sitting around – and not earning dividends, gains or interest – you should consult a financial professional immediately.
SIPC protects your investments if:
SIPC does not insure: investments through firms that aren’t members; market losses; promises of investment performance; or commodities or futures contracts.
I want to reiterate that SIPC covers the failures of brokerages, not the actual companies or bond issuers in which you choose to invest. If you invest in so-called junk bonds, for instance, failure is the risk you take in pursuit of high returns.
I hope that, by outlining what investments are insured and how, I’ve eased your mind a bit. If not, perhaps discussing your concerns one-on-one with a financial adviser could minimize your fears.
This article was written by Adam B. Carlat, a Glendale-based financial adviser and Chartered Retirement Planning Counselor® with One2One Wealth Strategies. Questions? Call (623) 850-0016 or email Adam@121ws.com.
*Source: www.FDIC.gov, www.SIPC.org
The opinions expressed in this article are those of Adam Carlat and are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your tax, legal and/or financial services professional regarding your individual situation. The views expressed in this letter are those of the author and may not necessarily reflect those by PlanMember Securities Corporation.
Guarantees and benefits of annuities are subject to the claims-paying ability of the insurance company.