Many investors, including my clients, have been worried about their Schwab account safety. Are they right to be worried?
My firm, IMA, is sending this email to all our clients. We could have sent it only to those who have money in IMA accounts at Schwab, but in many cases our clients have assets outside of IMA management. Also, though this letter focuses on Schwab, I address TD and Fidelity as well.
Q1 2023 hedge fund letters, conferences and more
I have received a few inquiries from clients expressing their concern about the safety of their money at Charles Schwab. Schwab has been in the news because the banking side of the business made investments into high-quality, long-term bonds whose prices have declined as interest rates have risen.
I could go into a very detailed analysis of Charles Schwab, but I won’t waste your time. The situation is fluid; interest rates can rise, worsening the losses, and deposits can outflow a lot more, deepening the losses further.
I have to be honest; anything I say below this paragraph is a waste of your time. If there is an institution too big to fail, it is Schwab, which has over $7 trillion in assets. If Schwab goes bankrupt and even a single account holder’s money is affected, we will have no economy or stock market. It is that simple. Account holders losing their money would be like dropping a nuclear bomb on the U.S. economy. Investors losing money on the cash at Schwab would create a run on the bank (actually on the economy) like the world has never seen. Schwab’s problems are less severe than those of many other banks, and if necessary the U.S. government will bail out its depositors.
However, for those of you who have some extra time, or maybe just continue reading because you enjoy my writing, here are a few more reasons not to worry.
Your stocks, bonds, and money market funds are registered in your name. For example, shares of Philip Morris or Schwab Treasury Obligations Money Fund (SNOXX) are database entries in your name. Any securities, other than cash, are on Schwab’s custodial side of the business, belong to you, and cannot be taken away from you, even if Schwab was to go bankrupt.
Read the full article here by Vitaliy Katsenelson, Advisor Perspectives.
