Is My Money Safe In A Brokerage Account

Are Brokerage Accounts Safe? Here's What You Need to Know

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Many investors worry about losing money in a brokerage account. Here's the scoop on safety.

Investing with a brokerage account is a good way to grow long-term wealth and meet your financial goals. But if you're new to investing, you may worry about putting your money into a brokerage account. So how safe a prospect is it really?

Before you start investing, know that there's always risk. That holds true whether you put your money into relatively safe, stable assets like bonds, or you buy riskier assets like stocks and cryptocurrency. But still -- as an investor, you're entitled to some basic protections when you put money into a brokerage account.

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Is your money safe in a brokerage account?

People lose money in brokerage accounts all the time. And often, that boils down to making poor investment choices, or making good choices that just don't happen to work out well.

Imagine you research a stock and buy 10 shares at $100 apiece, for a total investment of $1,000. If, several months later, that company's share price falls to $60, your investment is suddenly worth $600. If you leave your shares alone and wait to see if their value increases, you don't actually lose anything. But if you need money or grow impatient and cash those shares out, you take a $400 loss. That loss isn't your brokerage account's fault.

But what if something happens to your actual brokerage? What if it folds, or is shut down due to regulatory violations? Then what? In that scenario, you don't have to worry about losing money.

Many people are familiar with FDIC insurance in the context of bank accounts. If your bank is FDIC-insured and goes under, you're protected for up to $250,000 per depositor, per account category.

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Brokerage accounts work similarly. The Securities Investor Protection Corporation (SIPC) offers up to $500,000 in protection per brokerage account, including a $250,000 cash limit. This means if your brokerage account goes under, you won't automatically lose your money. But you will lose your money if your investments do poorly, or you sell off assets when their value is down.

Assessing your risk

Some people have a higher risk tolerance than others. And some investments are known to be volatile. Cryptocurrency, for example, carries a lot of risk, and if the idea of losing money keeps you awake at night, then it may not be suitable for you. Stocks can be risky as well, though they tend to be less volatile than crypto.

Assess your appetite for risk and weigh it against the potential rewards you might reap. Going back to our example above, let's say you buy 10 shares of a stock at $100 apiece, and leave them alone for five years. At that point, you may find that those shares are worth $200 apiece. You've doubled your money.

There's no way to predict with certainty how your investments will perform over time. But the stock market has a strong history of rewarding investors who stick with it for the long haul. And since brokerage accounts come with built-in SIPC protection, that should help you feel more confident putting your money into one.

Using the wrong broker could cost you serious money

Over the long term, there's been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns. Our experts have ranked and reviewed thetop online stock brokers - simplyclick here to see the results and learn how to take advantage of the free trades and cash bonuses that our top-rated brokers are offering.

About the Author

Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.

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