Financial crisis: What you should know

Crisis sparks confusion, questions about personal finance

By Allison Linn

Here’s what you should know about how the crisis might affect your personal finances.

Brokerage accounts

While most of us expect to see gains and losses as a result of investing in the stock market, some have raised concerns about what happens if the company that holds your investments runs into trouble.

If you are concerned, check to see whether your firm is a member of the Securities Investor Protection Corp., or SIPC. Created by Congress in 1970, SIPC covers investors for up to $500,000 in the event a brokerage fails or securities are stolen.

It’s important to note that this does NOT protect people whose investment portfolios lose value because of drops in the market or bad investments. That’s because investing in stocks and bonds is considered to be a risky endeavor, with upsides and downsides.

“They’re not guaranteeing the value of the stock,” said Barry Ritholtz, chief executive of the research firm FusionIQ and author of the forthcoming book “Bailout Nation.” “They’re guaranteeing $500,000 against the company going belly up.”

Some brokerage firms also have supplemental insurance for certain investments, should their brokerage fail.

Money markets

Money market funds often have been considered a safe haven for stashing cash that you don’t want in riskier investments, such as stocks. Recent troubles at one large money market fund sparked concerns that even these investments — considered by some to be safe as cash —are not completely secure.

Hoping to quell the anxiety, the Treasury Department recently stepped in to provide guarantees for money market funds, using a Depression-era fund to back them.

Mutual fund firms, also, have taken steps to comfort worried investors, including disclosing money market fund holdings and posting information about their investment decision-making.

Russ Kinnel, director of mutual fund research with Morningstar, said the best way to assure that your money is safe in a money market fund is to choose a relatively large, low-cost fund from a large company. Those steps should make it less likely the fund will make riskier investments, and more likely that the firm itself will make investors whole should the fund “break the buck,” or fall below the target of $1 per share.

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