Since everybody wishes for incomes from investments in an intensely materialistic age, it is only natural that stocks and mutual funds, bonds and ETFs, futures, and certificates of deposit serve the purpose. Why should large sums of money lying in the savings account in banks when alternative forms of investment would fetch higher returns? When such investments are made, it is a stockbroker who takes the deposits and invests it in the company. Is it not possible to invest directly with the company? It is done that way too through advertisements in the media, but a brokerage company would be entrusted with the task of managing the accounts and disbursing annual interests.
The element of risk
Perhaps the investments in stocks and bonds would generate positive incomes for a lifetime, increasing and decreasing according to market forces.
Lucky investments might witness sky-high returns and traders are constantly busy studying the markets and buying and selling accordingly to maximize incomes and reduce the risk factor. The media contain stunning stories of rising and fall of business empires and romantic stories of how the richest persons profited or lost billions in a single day.
The role of the stockbroker
Is the money safe when you invest it? Market forces that are hard to predict decide that. The extent of profit or loss does not depend upon the stockbroker, but the rising and falling values of the shares decide that. The question to ask is the danger of the stockbroker getting bankrupt and closing shop like some mega businesses have done. Mergers and acquisitions in such cases could avoid the downfall in financial terms. If the stockbroker is well connected perhaps with a banking conglomerate, there is almost no risk of such bankruptcy, though no guarantees exist.
The study of financial history
The large-scale investments and transactions online that exist today have been made possible through digital technology that rules the internet. It is only since the 1990s, which means two decades only since such larger scale communication was possible. What happened before that? It was all paper-based and procedures worked very slowly compared to the lightning-like communication today. Large-scale investments commenced in America only in the 1960s, and even that was only about 50 years ago as compared to the thousands of years of business conducted by humanity! Currencies and the banking system have been rather recent but transactions took place earlier through barter and the use of metal currencies.
Securities Investor Protection Corp (SIPC)
Subject to certain terms and conditions and financial limits, SIPC legally protects the rights and investments of the public. Such protection is doubly important at times of financial crises as happened in 2008 or during war or natural calamities when normalcy is disturbed. While stocks and bonds are protected, some investments are not, like commodity contracts and limited partnerships or fixed annuity contracts.
The company where the investment was made should be a member of SIPC for the protection to apply. In terms of amounts, SIBC may cover $500,000 and $250,000 could be cash.
However, SIPC has done miraculous recovery work regarding 99% of such cases ever since Congress set it up in 1970. There is not much to worry about investments because separate accounts need to be maintained as compared to the stock broker’s accounts. Abuse may happen but does not occur often. Large investments need to be taken greater care of, with a few smaller investments, reducing the risk factor in several companies. Avoid excessive worry.