[kylebenzle]

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

[rootsudo]

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

[greyface-]

A bank, brokerage account, or index fund would have FDIC or SIPC insurance coverage.

[rootsudo]

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

[greyface-]

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.

[quickthrowman]

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]

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/fractionalreservebankin...

[JumpCrisscross]

> 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.

[jmhyer123]

Except all of those are insured by the FDIC so there's almost no risk outside of market volatility.

[rootsudo]

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

[bdcravens]

Aren't most of those institutions bound by certain laws and insurance requirements?

[rootsudo]

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

[passwordis1234]

those institutions are not lending your money out in uncollateralized loans.

[rootsudo]

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/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