How to know if your savings and investments are safe

Despite what investors would like to be true, there’s no guarantee that your investments won’t lose money. Even the most conservative savings accounts could experience a loss if the bank mismanages their business and becomes insolvent.

Riskier investments like stocks and bonds can lose money because the company they represent goes bankrupt. The real key to feeling safe about your savings and investments is to research before you invest and diversify your holdings.

Research

When you research a company before you invest with them, you get a sense of their financial holdings, business history, future growth potential, and management style. All of these things can give you indications of whether or not you should invest in them.

When it comes to the financial institutions holding your money or stocks, you have the protection of both FDIC and SIPC. If your financial institution should become insolvent and lose the value of your investments, you can make limited recoveries through FDIC (if the institution is a bank that’s FDIC insured) and SIPC if the institution is a brokerage or investment firm.

Remember: These protections do not guard against poor investment decisions or losses, but against insolvency of your holding institution that results in losses you shouldn’t have endured.

Diversify

By having some of your capital invested in low-risk investments and some in higher-risk vehicles, you create a balance in your account that can help you weather losses in the market.

Savings and money market accounts can also help keep some of your savings safe and exposed to fewer risks.

See also: FDIC Insurance – What you need to know

Banking tips: This tip was originally posted on 5-17-2010 at 7:34 am.

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