Are Your Investments Secure?

A question I have been getting lately is: With all the news about companies going out of business, and banks being taken over, how can I be sure my money is safe? What happens to my 401(k) if my company goes under? What happens if my mutual fund company goes out of business?

Unfortunately, these are very relevant questions in today's market environment. Let me cover the most common investment types, and the "safety" of each.

Bank Accounts: Bank and credit union accounts, including checking, savings, and certificates of deposit, are insured against loss by The Federal Deposit Insurance Corporation (FDIC). This government agency has insured $100,000 per account holder per bank since 1980. The recent “financial bailout” signed by President Bush, has temporarily increased the coverage amount to $250,000 to help reassure depositors that their assets are safe.

401(k): If your employer goes out of business, your 401k and other retirement accounts are protected by the Pension Guarantee Corporation. Your retirement assets are separate from your employer’s assets – they belong to you. They do not guarantee you will make money in your investments, only that the assets cannot be seized as a result of failure by a company.

Mutual Funds: Mutual funds are subject to market fluctuation and therefore aren't guaranteed against market loss. However, under the Investment Company Act of 1940, your fund assets are protected if the fund company was to go out of business. Each fund is set up as a separate corporate entity, with its own board of directors who are responsible for looking out for the best interests of the fund shareholders. So, if your fund company went out of business, your assets would remain intact and, with shareholder approval, the directors could hire a new manager to oversee the accounts.

There are numerous government agencies and regulations already in place to safeguard your investments from fraud and misappropriation. However, as we have painfully been aware of the last few days, market fluctuations are something that each individual must bear. I would note that this is a great time to reevaluate your investments and level of risk you are taking.