Myths Surrounding Financial Guarantees: Protecting Your Assets

Americans work long hours for their money, and many invest their assets thinking that the money saved or invested will be protected. For the most part, our money is safe when we deposit it into our bank accounts, but there are a few popular myths about financial guarantees that this article will dispel. Here are a few myths out there:

1) Assets are insured by the Federal Deposit Insurance Corporation (FDIC): While it may be true that the money you put into your bank account is FDIC insured, there are a number of things that are not covered including your insurance, mutual funds, and items in a safe deposit box. Additionally, there are 300 state chartered credit unions that are insured privately. So the next time you are thinking of using a credit union, be sure to ask them about their insurance policies so you don't end up with nothing.

2) SIPC (Securities Investor Protection Corporation) will protect your assets in the event of market losses: Even if your broker recommends the SIPC it will not protect your money in the event the stock market plunges. It will only protect you from theft or insolvency. The SIPC does however; protect your broker's custodial function. In other words, say your broker files for bankruptcy and your assets are then labeled as missing, the SIPC will step up to recover your assets. The SIPC is very important for if you do lose your assets, then this corporation can alleviate the waiting time you would normally experience through court proceedings.

3) Insurance is supported and backed by the government. Well, yes and no. It is true that insured products are protected by various state-guaranty agencies and that those agencies are established by programs that are run by your government. However, those government run programs are paid for by the insurance companies themselves, which dispels the myth that our insurance is backed by the government. Insurance is backed by insurance companies!

So how can we protect our money and assets? Be sure to read all paperwork handed to you whether it is from your bank, broker, or insurance representative. Often, our paperwork unveils clues as to how your assets are actually protected. So many times we'll file that abundant paperwork away, shred it, or throw it away when we should be reading that fine print accompanied with the services we acquire. Additionally, if you invest be sure to diversify. It is a given, or you should have this mindset, that when we invest, we are gambling with the possibility of loss. Investing in various types of stocks or bonds will allow you to gain some control when the market is down. We can gain more control of our financial assets with solid knowledge and smart investing practices.