Lehman Brothers (LEH) filing today certainly affects some of the exchange traded funds (ETFs) you may have in your portfolio, but does it affect you personally?
The Dow Jones Industrial Average lost more than 500 points today, and many investors are nervous. Lehman’s balance sheets are bloated with underperforming assets, and the sale of its $600 billion in assets could be a milestone for Wall Street, says Alex Durmortier for the Motley Fool.
Brett Arends for the Wall Street Journal has some tips for you to protect yourself. Among them, make sure your bank accounts are federally insured, and make sure your brokerage account is federally insured, too.
At Lehman, your brokerage account is safe. The Securities Investor Protection Corporation (SIPC) makes sure your account up to $500,000 (per customer) is insured. Arends says that if you have more to invest, it should be spread across multiple firms.
It should be noted that investments that are not eligible for SIPC protection are commodities futures contracts, currencies and investment contracts. When a troubled brokerage firm goes into liquidation, the financial worth of a customer’s account is calculated as of the “filing date.”
As a reminder, the Federal Deposit Insurance Corporation (FDIC) insures up to $100,000 per depositor (not per account, but per individual). The $100,000 amount applies to all depositors of an insured bank, except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per insured bank.
Brokerage accounts are required by the Securities and Exchange Commission (SEC) to be kept separate from a firm’s corporate finances. That means they’re secure, even if the firm goes bankrupt.
Most importantly, don’t panic. There are always going to be bumps in the road, and if you have a stop loss, it will protect you in times like these. Keep your emotions out of the equation.
It’s also important to note that the media tends to move in a pack, and many of them are going to say “we don’t know if this is going to get a lot worse.” But it could get a lot better, too. If you’ve been following our strategy and set stop losses, then you probably aren’t feeling much pain.
If you’ve been holding on to your portfolio, pay attention to the financials, as there may be exposure to further declines.