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Worried about financial safety

Question: My husband and I are 32 and 31. We have approximately 80K in retirement investments (SEP IRA, mutual funds) with Wells Fargo. We noticed recently that they have a disclaimer on their forms stating that investments are not FDIC insured. With the recent collapsing of investment firms and banks, and with the Lehmann Bros not being bailed out by the government, the uninsured FDIC investment makes me somewhat nervous. How do we know that our investment is "safe"? Should we consider doing something else with our money until we know Wells Fargo makes it through this time of turmoil? Renee, St. Paul, MN

Answer: I'm getting variations of your question from a number of folks. Checking, savings, money market deposit accounts, certificates of deposit, and other bank products are insured by the FDIC up to $100,000. (A CD in an IRA is insured up to $250,000.) You're absolutely right: There is no FDIC insurance when it comes to stocks, bonds, mutual funds, ETFs, commodities, and other market investments even if you bought them through a bank or a similar financial institution.

Still, there is a safety net. The biggest protection for your investments comes from the segregation of customer accounts from the finances of the bank or brokerage house. If a bank or brokerage house goes under, you still own the securities and your account will be sold or transferred to another institution. The Securities Investors Protection Corp. (SIPC) offers additional protection in case of fraud or malfeasance.

None of this investment safety net preserves the value of your money in the market. For example, if you own a stock mutual fund it's probably way down and odds are it's headed even lower. But you won't be wiped out if the financial institution you do business with fails.

That's only one aspect of financial safety. Another is taking a close look at the actual investments you're in. The key question is how well diversified are you? And, with all the turmoil in the market and no end in sight, do you feel that you have too much in stocks or some volatile asset. If the answer is yes, by all means trim back to a more conservative portfolio. .

About the author

Chris Farrell is the economics editor of Marketplace Money.

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