When you invest in stocks, you accept some risk. Your stocks may drop in value, shrinking your investment. That kind of risk is unavoidable, but other brokerage-related risks are not. The SIPC and FINRA can shield you from disaster.
First off, meet the Securities Investor Protection Corp., or SIPC. When you shop for a brokerage, make sure that it's a member of the SIPC -- it should say so right on its website. SIPC member brokerages protect the cash, stocks, and other securities they hold for their investors. If your brokerage goes belly-up and any cash or stocks you held in your account suddenly go missing, the SIPC can help. There's generally a maximum protection value of $500,000 per customer, which includes up to $250,000 in cash. Some brokerages offer additional protection -- just ask about that. Wealthy investors might want to split their assets between several brokerages, to avoid exceeding any single brokerage's SIPC protection limits.
Throughout your investing life, it's a good idea to periodically make sure that your brokerage is still an SIPC member. If it ever stops sending you statements, or does so sporadically, that's a big red flag.
Next up is the Financial Industry Regulatory Authority, or FINRA, the largest independent regulator of more than 4,500 brokerages and more than 630,000 registered securities representative. It writes and enforces rules that make life easier for us investors.
FINRA often imposes fines on its members for stepping out of line. It recently ordered Schwab
In addition to penalizing misbehaving firms, FINRA also aims to educate investors, supporting financial literacy efforts and offering guidance on its website. It also resolves disputes and monitors brokers. Investors can look up brokers on its website, to see whether they have any marks against them.
Investing in just about anything carries some risks, but you can help your portfolio grow not only by looking for upside potential, but also by minimizing your downside potential.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Charles Schwab is a Motley Fool Stock Advisor pick. Try any of our investing newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is Fools writing for Fools.