How hold stocks?
H B
financial institutions in trouble, how do we determine who to trust to
hold our stock? [Am I the only person to hold my own paper stock?]
Would there be any qualms about letting the stock's own company hold my
stock electronically? It would supposedly be accessible by computer- if
I get access to one. Or, in using that same company to sell my stock at
some point? Thanks.
Don
You should definitely investigate dividend reinvestment plans (DRIPs)
of individual companies if you have not already done so. You are right,
when banks, insurance companies, etc. are no longer certain to survive,
it is reasonable to be cautious about brokerages too. I have always
held ALL my individual stock stock certificates in my very own filing
cabinet and was nervous about keeping them in "street name," even when
people generally believed financial institutions of all types to be
perfectly safe.
honda....@gmail.com
> You are right,
> when banks, insurance companies, etc. are no longer certain to survive,
> it is reasonable to be cautious about brokerages too. I have always
> held ALL my individual stock stock certificates in my very own filing
> cabinet and was nervous about keeping them in "street name," even when
> people generally believed financial institutions of all types to be
> perfectly safe.
Have you heard of a brokerage that, when it went bankrupt, failed in
its fiduciary obligations re buying, selling, and administrating
dividends of a client's stock shares?
honda....@gmail.com
> With so many large
> financial institutions in trouble, how do we determine who to trust to
> hold our stock?
A good article on this from July 2008: http://www.kiplinger.com/columns/ask/archive/2008/q0721.htm
Aside: The only stupid question is an unasked one. You helped others
by posting your query, too.
Don
> Have you heard of a brokerage that, when it went bankrupt, failed in
> its fiduciary obligations re buying, selling, and administrating
> dividends of a client's stock shares?
No, I have never heard of that. In fact, I have never even heard of
brokerages failing. But, you know, until this past year I had never
heard of big banks, big insurance companies, and big auto makers
failing either! Since it is not a whole lot of bother keeping the stock
certificates at home, I would rather be safe than sorry.
PeterL
Well then you have not been paying attention. Lots of banks have
failed before last year. But even in a difficult year like last year,
the FDIC has managed to take orderly transition by arranging seamless
transfer of bank assets. There has been not run on bank deposits.
For many it is a lot of bother to keep stock certificates at home.
Don
> Well then you have not been paying attention. Lots of banks have
> failed before last year. But even in a difficult year like last year,
> the FDIC has managed to take orderly transition by arranging seamless
> transfer of bank assets. There has been not run on bank deposits.
> For many it is a lot of bother to keep stock certificates at home.
It is risky to assume that, because something has never happened
before, it can't happen. In recent times, in financial matters, we have
seen a steady stream of occurrences that previously would have seemed
unlikely if not impossible. When a possible loss could seriously affect
one's financial health, extra caution would seem to be in order. Call
me paranoid.
Don
> Now, if computer records are not destroyed, realistically up to
> 500,000 USD is insured by SIPC, so I am personally not losing sleep
> over my small Ameritrade account.
The SIPC insurance is reassuring to be sure, but I wonder what would
happen if a large number of brokerages all shut down at the same time.
I guess the same question could be asked about FDIC and banks. Strange
things seem to be happening nowadays.
Another consideration: You can't set up a DRIP if your shares are in
street name. At least it was that way when I set up mine.
BreadW...@fractious.net
> Another consideration: You can't set up a DRIP if your shares are in
> street name. At least it was that way when I set up mine.
Many brokerages will reinvest dividends at no cost and
track fractional shares as well. Fidelity, for certain.
There's nothing magical at reinvesting dividends. You
could just as well take dividends in cash and use it
for rebalancing and further diversifying.
Frankly, many of the DRIP programs impose worse costs
than doing it at a decent discount brokerage. And you
end up with that many more custodians to deal with. Not
much upside in my opinion.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
Don
> Many brokerages will reinvest dividends at no cost and
> track fractional shares as well. Fidelity, for certain.
>
> There's nothing magical at reinvesting dividends. You
> could just as well take dividends in cash and use it
> for rebalancing and further diversifying.
>
> Frankly, many of the DRIP programs impose worse costs
> than doing it at a decent discount brokerage. And you
> end up with that many more custodians to deal with. Not
> much upside in my opinion.
In addition to atomatic reinvestment of dividends, it is also possible
to buy more shares in the company without brokerage fees. I started
with ONE SHARE of stock in each of various companies. Then I acquired
the larger amounts I wanted without brokerage fees.
Don
> Is DRIP a tax nightmare? Or is it easy as far as taxes are concerned?
> (figuring out tax cost basis of thos efractional shares).
My companies do the paperwork and I just report figures included on a
slip provided at tax time. I suspect there might be problems if you
bought and sold shares frequently. I would say DRIPs are definitely for
buy and hold investors.
BreadW...@fractious.net
It's similar to what happens to cost basis of mutual
funds which reinvest dividends and capital gains.
If you buy, buy, buy, reinvest, reinvest, reinvest and
then stop buying and reinvesting completely before
starting to sell, sell, sell, it's easy. But you do
have to keep track of every transaction. With a
typical equity mutual fund, there may be one or two
dividend reinvests and one or two cap-gains reinvests
per year. With a typical dividend paying stock, it'd
be four dividend reinvests per year. For each stock
or fund you do this with, just start a spreadsheet.
Or use Quicken or something similar.
It's not difficult, but it is a bit of work.
If you buy and then sell some and buy some more, the
numbers get messier, particularly if you sell from
more than one lot at a time (which is very likely if
most of the shares were due to reinvest purchases over
the years). You can also use the "average share price"
method for calculating basis, but, again, it's a little
messy. You really want a spreadsheet for this.
As I said, I just don't think there's much value added
by doing all this. And even if you want to do dividend
reinvests, it's vastly easier just to do it at a discount
broker than having to deal with multiple custodians (one
for each individual stock you're talking about).
honda....@gmail.com
This is a little misleading. According to the article I linked
earlier, first a brokerage client gets back his/her share of the
brokerage's assets. Then up to $500,000 is reimbursed in cash or by re-
purchasing the lost shares and giving them to the client. Then
typically brokers' supplemental insurance kicks in. It seems all major
brokers have this supplemental insurance. "[O]nly 349 people have not
received the full value of their accounts from their prorated share of
the firm's assets plus SIPC coverage... most of those cases happened
before 1978, when the maximum SIPC could advance was $50,000, rather
than today's $500,000 limit."
Lastly, it is $500k per brokerage firm. So say use two brokerages, and
a person has $1 million dollars+ of protection.
If a person cannot grasp these facts, they probably should not be
buying stocks, U.S. treasuries etc. in the first place. There is a lot
more risk intrinsic to simply owning securities than there is in
brokerages failing, IMO.
Augustine
>
> Please can someone help with some stupid questions? With so many large
> financial institutions in trouble, how do we determine who to trust to
> hold our stock? [Am I the only person to hold my own paper stock?]
In this scenario, why would you hold any stock? Then, it's more
likely that the stock will be worth less than the paper used to print
it...
HTH
Mark Freeland
news:200904102058457987-dwzimm@telusnet...
Oh, it gets even better. Some companies allow DRIP participants to reinvest
dividends and purchase additional shares with outside cash (as you
described) at a discount.
See, e.g. the list here:
http://seekingalpha.com/article/127817-using-drips-for-faster-compounding-of-dividends
Another upside? If you're worried about the broker holding your
certificates going bust, some of the DRIPs keep your shares in book entry
form - so you're confident you won't loose your shares unless the company
itself goes bust (in which case, does it matter?).
Mark Freeland
nNe...@nyc.rr.com
Mark Freeland
news:bdf45f79-df9d-4efc...@o30g2000vbc.googlegroups.com...
> It seems all major
> brokers have this supplemental insurance.
I posted here just recently that JPMorgan (formerly Bears Stearn) was
dropping excess SIPC insurance.
http://groups.google.com/group/misc.invest.financial-plan/browse_thread/thread/70183e572dfec825
That's a really major broker.
See also
http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/P116996 on the
distinction between clearing houses and introducing firms. It's the former
that hold your assets.
Mark Freeland
nNeE...@nyc.rr.com
Rich Carreiro
> the years). You can also use the "average share price"
> method for calculating basis
No, you can't. Average basis is only allowed for mutual funds,
not for "regular" securities.
--
Rich Carreiro rlc-...@rlcarr.com
Rich Carreiro
> I posted here just recently that JPMorgan (formerly Bears Stearn) was
> dropping excess SIPC insurance.
> http://groups.google.com/group/misc.invest.financial-plan/browse_thread/thread/70183e572dfec825
> That's a really major broker.
Of course, it's unclear how useful excess SIPC insurance would
actually be. The insurance is just that -- insurance provided
by a private company -- so I wonder how well capitalized it
actually is and how many claims it can actually handle.
I also recall reading that CAPCO, the main (only?) provider of
excess SIPC insurance, is thinking of exiting the business.
--
Rich Carreiro rlc-...@rlcarr.com
Don
> Another upside? If you're worried about the broker holding your
> certificates going bust, some of the DRIPs keep your shares in book entry
> form - so you're confident you won't loose your shares unless the company
> itself goes bust (in which case, does it matter?).
Right, the main worry is the COMPANY itself, not financial
intermediaries. So it makes sense to carefully choose the companies in
first place. That may seem risky, but I don't find it any more
unnerving than trying to select a mutual fund, which is also risky. If
you stick to blue chip companies that pay dividends, it may be less
risky than selecting managed financial products. My strategy was to
look at companies with (1) high dividends and (2) a history of
gradually rising dividends over some considerabe period of time, and
take it from there.
BreadW...@fractious.net
> BreadW...@fractious.net writes:
>
> > the years). You can also use the "average share price"
> > method for calculating basis
>
> No, you can't. Average basis is only allowed for mutual funds,
> not for "regular" securities.
Quite right - my post was ambiguous there. In fact, for the
mutual funds, there are a couple of ways to do it (single
and double category). As I said, it's messy, and while the
IRS makes this additional method available (and it's actually
the default method that most brokers use unless you go
out of your way to specify that you want FIFO or specific
share identification. I generally recommend the latter).
This is a pretty nice summary of all this:
<http://www.schwab.com/public/schwab/research_strategies/market_insight/financial_goals/tax/calculate_the_cost_before_you_sell.html>
Note, too that under the Economic Stablization Act, the
burden of tracking cost basis is being shifted to the
brokers and custodians (from the individuals). Starting
with all stock purchases in 2011 and mutual fund and
DRIPs in 2012 and debt instruments, options and other
secrities in 2013.
I find it interesting that they included DRIPs and
Mutual Funds in one category while regular individual
stock purchases in another.
Anyway, my main point is that if you are buying a little
at a time with a DRIP or a fund with reinvestments, your
life is going to be easier if you stop buying when you
make your first sale and not buy any more.
I'm trying to imagine the tax nightmare faced by folks
who write checks directly from their fund accounts -
which is allowed in many bond funds whose NAVs do move
up and down. Yech.
Rich Carreiro
> I'm trying to imagine the tax nightmare faced by folks
> who write checks directly from their fund accounts -
> which is allowed in many bond funds whose NAVs do move
> up and down. Yech.
Especially since you are guaranteed to have wash sales,
since purchases (via reinvestment) are happening monthly.
--
Rich Carreiro rlc-...@rlcarr.com
Xho Jingleheimerschmidt
> Igor Chudov <ichu...@algebra.com> wrote:
>> realistically up to
>> 500,000 USD is insured by SIPC
>
> This is a little misleading. According to the article I linked
> earlier, first a brokerage client gets back his/her share of the
> brokerage's assets. Then up to $500,000 is reimbursed in cash or by re-
> purchasing the lost shares and giving them to the client. Then
> typically brokers' supplemental insurance kicks in. It seems all major
> brokers have this supplemental insurance. "[O]nly 349 people have not
> received the full value of their accounts from their prorated share of
> the firm's assets plus SIPC coverage... most of those cases happened
> before 1978, when the maximum SIPC could advance was $50,000, rather
> than today's $500,000 limit."
How does Bernie Madoff effect this?
Xho
honda....@gmail.com
Re SIPC coverage:
> How does Bernie Madoff effect this?
Googling turns up much on this. The SIPC has been notifying a certain
category of Madoff's victims of their rights and it appears many will
recover $500k. Others were doing investing with Madoff that is not
covered by SIPC rules etc. A quick pick:
http://www.time.com/time/business/article/0,8599,1871173,00.html
honda....@gmail.com
> <honda.lion...@gmail.com> wrote in message
> > It seems all major
> > brokers have this supplemental insurance.
>
> I posted here just recently that JPMorgan (formerly Bears Stearn) was
CAPCO dropped JPM (not the other way around, from your brokerage
statement) but is any other supp insurer in place or is JPM trying to
line up another supp insurer? Seems like not having supp insurance
could make a dent in JPM business. OTOH I suppose JPM could also be
counseling its brokerage clients not to put in more than the SIPC
would reimburse.
Clarification: JPM is not formerly Bear Stearns but rather JPM, a much
larger company, bought Bear Stearns with government support ec.
Mark Freeland
news:8d235d27-95ee-4d2e...@f18g2000vbf.googlegroups.com...
> CAPCO dropped JPM (not the other way around, from your brokerage
> statement) but is any other supp insurer in place or is JPM trying to
> line up another supp insurer?
CAPCO policies last for one year. It did not terminate a policy in force.
At the end of each policy period, an insured brokerage must either purchase
insurance from an insurer willing to sell it, or go without insurance.
JPMCC chose to take the latter path; so it dropped excess SIPC insurance
coverage. (If Allstate won't renew your auto policy, and you don't ask
State Farm, then you're the one deciding to drive without coverage.)
Given that JPMCC is standing by its January statement, which talks about
SIPC insurance but is silent about excess coverage, I would guess it's not
lining up other coverage.
http://www.jpmorgan.com/pages/jpmorgan/safety
> Clarification: JPM is not formerly Bear Stearns but rather JPM, a much
> larger company, bought Bear Stearns with government support ec.
Clarification: I was specifically talking about the clearing house
brokerage. This was a subsidiary of Bears Stearn (not Bear Stearns), and
remains a subsidary (JP Morgan Clearing Corp) of its new parent. As a
separately capitalized company, it seems to live or die on its own.
JP Morgan Clearing Corp. has its own brokerage license, and its own
membership in SIPC. So it is indeed a distinct brokerage. One that was
large, and remains large, on its own merits. A major brokerage that has no
excess SIPC insurance.
http://www.hoovers.com/j.p.-morgan-clearing/--ID__117925--/free-co-profile.xhtml
To respond to Rich C's comment about other insurers, I knew of only one -
Lloyd's of London. Apparently there is also XL Insurance. Here's an
article discussing who's a member of by whom:
http://seekingalpha.com/article/130367-how-solid-is-excess-brokerage-coverage
I get a kick out of the fact that JP Morgan Chase is a member of CAPCO, yet
CAPCO won't cover its subsidiary - just more evidence that JP Morgan
Clearing Corp really is distinct from JP Morgan Chase. And R.W. Baird,
despite being one of the members of CAPCO, insures through Lloyd's.
http://www.rwbaird.com/bolimages/Media/PDF/Help/safety-client-assets.pdf
Not that I have much faith in CAPCO, which IMHO amounts to little more than
self-insurance (companies banding together to insure themselves, because
real insurance companies that understand insurance feel unable to estimate
the risk). They do use a couple of unnamed reinsuers, at least one of whom
seems to have dropped recently from AAA to A, if I'm skimming documents
correctly.
Mark Freeland
nNe...@nyc.rr.com
honda....@gmail.com
> > statement)
> CAPCO policies last for one year. It did not terminate a policy in force.
In the several posts you put on the internet on this, you quoted from
a brokerage statement, "CAPCO will not be renewing any of its surety
bonds at their termination on February 16, 2009." I was going by what
the brokerage statement said (as quoted by you).
If I were a JPM client, I would call JPM and ask what is going on,
rather than guessing.
> This was a subsidiary of Bears Stearn (not Bear Stearns)
I think I will go with "Bear Stearns," per the 18 million hits my
search engine gives vs. about a thousand for "Bears Stearn."
Putting aside the trees so as to see the forest, I agree the main
point of your original post is important information.
Xho Jingleheimerschmidt
> Xho Jingleheimerschmidt <xhos...@gmail.com> wrote:
> Re SIPC coverage:
>> How does Bernie Madoff effect this?
>
> Googling turns up much on this.
Unfortunately, much of what it turns up is of very little value.
> The SIPC has been notifying a certain
> category of Madoff's victims of their rights and it appears many will
> recover $500k. Others were doing investing with Madoff that is not
> covered by SIPC rules etc. A quick pick:
> http://www.time.com/time/business/article/0,8599,1871173,00.html
From that article, I see that:
1) The author apparently forwent investing with Vanguard or Fidelity,
and decided to go with an unregistered unregulated hedge-fund-like
thingy instead, and this decision is somehow the fault of the poopy
heads at the SEC.
2) The number of people who are likely to get something from SIPC which
is capped at maximum level is likely to add quite a bit, but God knows
how much, to the number given in the post to which I responded.
3) The number of people who had a good faith reason to think they might
be covered by the SIPC but it turns out they aren't covered because of
some rules-lawyering by the SIPC is completely unaddressed.
Xho
honda....@gmail.com
Re Madoff victims and the SIPC:
snip; can't parse
> 3) The number of people who had a good faith reason to think they might
> be covered by the SIPC but it turns out they aren't covered because of
> some rules-lawyering by the SIPC is completely unaddressed.
I am not sure what you are trying to say. Sounds to me like many
Madoff investors were people seeking to get-rich-quick (many were
already rich, especially those who invested in Madoff vehicles not
covered by SIPC) and so necessarily were willing to take greater
risks. The SIPC rules seem clear enough to me.