How To protect your Cash

Discussion in 'ETFs' started by tradingbug, Feb 26, 2009.

  1. I am trying to figure out the best way to protect ones brokerage account if banks start to fail.

    Essentially, brokerage accounts are insured 100k in cash and up to 500k in equities.

    How does one insure there cash if you have more than 100K and do not want hold equities?

    The only thing I have come up with as of right now is to put half in the SPY and the other half in the inverse SPX which is SH. It has come to my attention that inverse ETFs have a time decay. I was wondering how bad the time decay would be .....say if i held for a couple months. Would it be almost negligible. Hoping those who are more experienced with ETFs could help.

    Also, would holding ETFs count toward owning securities and be eligible for the equities insurance up to 500K ?

    If anyone has any other suggestions on account protection, it would be greatly appreciated.

  2. First thing to me is open with more than one institution. Split assets between 2-3.
  3. put your money in several accounts at different banks.

    The bank manager told us that was happening a few months ago for that very reason.
  4. Daal


    Sell EFPs(Long stock short ssf)
  5. Yes agreed... I was talking about brokers though. No surprise people are doing that. Thanks.

    I was more interested in how bad the time decay might be for the ETFs as I still want cash to trade the nice volatility but still be insured for more than just 100k cash.
  6. Could you elaborate? Never dealt with EFPs.
  7. If banks start failing, you might have counterparty risk and the ETFs might not trade at their correct values. So, I'm not sure what the answer is. I've been thinking about this myself.
  8. the only way to really guard against it is to have stock in your account and keep under 100k cash. my plan if i see my clearing house or broker in trouble is to buy stock like ko to get my cash under 100k. its a necessary evil as one must have well over 100k in there account if trading stocks retail.
  9. Bug - first I should probably say I'm not licensed, etc. etc. so you shouldn't really take anything that I say serious... that said... you know how/where to reach me if you want to discuss further...

    #1, what about a mutual fund or money market? E*Trade allows me to sweep my cash into a MM every night or just put it in there and borrow against it. Can you purchase cash into a MM? That would get you into a 40 Act Fund and $500k protection...

    #2, don't go with buying both sides of a pair, price decay and compounding will make you lose capital

    #3, if you have more than $500k in cash you could always look at a few different money market funds.

    If you do invest in a money market know that they aren't always marginable until 30 or sometimes more (or not at all) days... so you may lose trading capital for a short period...

    I would also suggest that you totally ignore the yield and look at the underlying securities - my firm's MM's use all US Treasury backed securities with a 1-day maturity (repos mostly). Yield isn't great... we look at it as a place to "park" your cash while you wait it out or decide your next move. 1-day maturity on gov't backed securities will give you the most security - in my un registered, un licensed opinion.

    Finally, see below...

    IIRC, my firm had small positions at both Leh & Bear up to and through the end - to be honest I believe that the positions were so small that even if we did lose 100% of them, none of the fund's NAV's would have taken a hit, however still, even through Leh & Bear fell & went away the securities (sometimes over $500k) still existed, we simply closed out the positions and opened them elsewhere.

    My perspective, as a person who works for a firm that relies on counterparties to do business, my only concern with banks going under is a general lack of counterparties - the securities are not even a concern... they are SAFE... but we also have bi-lateral tri-party agreements.

    Bug - let me know if you have any other ?'s...
  10. winstonj, thanks for the input!
    #10     Feb 27, 2009