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Awesome! So I can get a 7% return and all I have to do is trust random strangers with ALL of my money.

by kylebenzle 6y ago

rootsudo 6y ago
Which is..exactly the same when compared to a bank, a brokerage account, or index fund.
- greyface- 6y ago
  A bank, brokerage account, or index fund would have FDIC or SIPC insurance coverage.
  - rootsudo 6y ago
    It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
    - greyface- 6y ago
      There's no disagreement here. FDIC/SIPC protect against insolvency. The context of this discussion is borrower credit risk, i.e., the risk that the borrower becomes insolvent.
- bdcravens 6y ago
  Aren't most of those institutions bound by certain laws and insurance requirements?
  - rootsudo 6y ago
    Not for investments. For regular banking, checking and savings, yes. That's FDIC. It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
- jmhyer123 6y ago
  Except all of those are insured by the FDIC so there's almost no risk outside of market volatility.
  - rootsudo 6y ago
    Wrong. It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
- passwordis1234 6y ago
  those institutions are not lending your money out in uncollateralized loans.
  - rootsudo 6y ago
    Yes they are, banks operate on fractional reserve. Banks do signature loans all the time. A popular one is known as a credit card. https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin... It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
- quickthrowman 6y ago
  Bank accounts are FDIC insured up to $250,000 each. If your broker lends out your stock to short sellers, it will always return your shares, even if the short seller gets margin called and doesn’t have the money to pay back their broker. I’m not sure what you mean by “index fund”, but securities/stocks are protected by SIPC insurance, up to $500,000 per account. You will get your stocks back if a brokerage fails.
  - rootsudo 6y ago
    A bank does not mean bank account, banks offer many different investment vehicles. A savings or checking account is covered by FDIC. If your broker lends out your stock and can not recoup it, then you are also not protected by SIPC. https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin...
    - JumpCrisscross 6y ago
      > If your broker lends out your stock and can not recoup it, then you are also not protected by SIPC This is not true. The broker would be in default to you. If that literally pushed the broker under, SIPC would be there to pick up the pieces.

Awesome! So I can get a 7% return and all I have to do is trust random strangers with ALL of my money.

rootsudo 6y ago

Which is..exactly the same when compared to a bank, a brokerage account, or index fund.

greyface- 6y ago
A bank, brokerage account, or index fund would have FDIC or SIPC insurance coverage.
- rootsudo 6y ago
  It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
  - greyface- 6y ago
    There's no disagreement here. FDIC/SIPC protect against insolvency. The context of this discussion is borrower credit risk, i.e., the risk that the borrower becomes insolvent.
bdcravens 6y ago
Aren't most of those institutions bound by certain laws and insurance requirements?
- rootsudo 6y ago
  Not for investments. For regular banking, checking and savings, yes. That's FDIC. It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
jmhyer123 6y ago
Except all of those are insured by the FDIC so there's almost no risk outside of market volatility.
- rootsudo 6y ago
  Wrong. It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
passwordis1234 6y ago
those institutions are not lending your money out in uncollateralized loans.
- rootsudo 6y ago
  Yes they are, banks operate on fractional reserve. Banks do signature loans all the time. A popular one is known as a credit card. https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin... It does not protect if the asset invested in goes down in value. FDIC is protection against the bank being insolvent. SIPC does not protect customers against losses from the rise and fall in the market value of investments. https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/what-sipc-protects
quickthrowman 6y ago
Bank accounts are FDIC insured up to $250,000 each. If your broker lends out your stock to short sellers, it will always return your shares, even if the short seller gets margin called and doesn’t have the money to pay back their broker. I’m not sure what you mean by “index fund”, but securities/stocks are protected by SIPC insurance, up to $500,000 per account. You will get your stocks back if a brokerage fails.
- rootsudo 6y ago
  A bank does not mean bank account, banks offer many different investment vehicles. A savings or checking account is covered by FDIC. If your broker lends out your stock and can not recoup it, then you are also not protected by SIPC. https://www.investopedia.com/terms/f/fractionalreservebanking.asp https://www.investopedia.com/terms/f/fractionalreservebankin...
  - JumpCrisscross 6y ago
    > If your broker lends out your stock and can not recoup it, then you are also not protected by SIPC This is not true. The broker would be in default to you. If that literally pushed the broker under, SIPC would be there to pick up the pieces.