Risk of Vanguard Going Belly-Up?

[Rose Boy]

Hi there,

I'm a physician's spouse (I "only" have a PhD, and work as a clinical pathologist), but am our default financial adviser as my wife would prefer not to think about money ever. I try to keep her up-to-date on our financial plans, however, and, since she is going to be an attending imminently, I am talking to her about our financial plans way more than she'd like as I plan for our change in finances. One of the things I have mentioned is keeping all of our investing accounts under one roof - Vanguard. She is very wary of this idea, for a specific reason: she grew up in the former Soviet Union, and heard her family discuss how they lost all of their money when the banks went belly-up during the transition to independent states. I have tried to tell her that Vanguard is not a bank, and we really have our money in diversified securities, but I can't help wonder if there is some truth to her fears.

What is the risk of Vanguard failing, and losing all of our money in the process?

Thanks in advance,

Nick

[The White Coat Investor]

That risk is exceedingly low, but feel free to put some of your money at Fidelity or Schwab if it makes her feel better. It's only a little more complexity to deal with and there are some excellent low cost index funds at each of them.

[raddds]

Mike Piper, Oblivious Investor, wrote about several unlikely events and Vanguard. http://www.obliviousinvestor.com/is-it-safer-to-use-multiple-fund-companies/. The Boglehead.org forum has discussed the topic on many occasions. Research it, diversify, and use the other low cost investment houses as mentioned above, if that makes you feel more secure. In the unlikely event that Vanguard runs into trouble, it is likely there will be many others in trouble as well.

[jhwkr542]

The risk is too small to worry about and prepare for.

[VagabondMD]

I am a natural worrier. Regular forum readers can attest to my overly cautious nature.

The risk of Vanguard imploding and wiping out my savings is very, very low. On the VMD worry scale, it would rank somewhere between the earth crashing into the sun in my lifetime and a tree falling into my house and killing me while I sleep (the former less worrisome than Vanguard imploding, the latter more concerning). In short, I do not lose any sleep over it, but perhaps I should call a tree service in the morning...

[Hatton]

This is an event too remote to actively worry about.  Worry about your saving rate, asset allocation etc things you control and not things you do not control.

[Donnie]

Unlikely Vanguard's problems would be unique to Vanguard in such a scenario, so not sure there's much to do here even if you are worried about it.

[Rose Boy]

Thanks everyone for the opinions, and links to resources. Hopefully this will put my wife's mind at ease, so she can go back to worrying about whether she passed the boards!

[Craigy]

Great question that I consider every now and then.

Thing is, if a company like Vanguard was having those sort of problems, not only would the other firms be having the same problems, but the entire market and economy would be facing some severe or catastrophic event.

There are so many institutions with billions of dollars at stake with Vanguard, one would have to imagine that at least some of those players are keeping tabs and checking the books.  They are also externally audited by Pricewaterhouse which is worth something, even if companies like Arthur Andersen could issue phony reports for years and years.

Vanguard's tremendous size means that the US government has a tremendous national interest in keeping them afloat, so even if there was some trouble, there would probably be bailouts, and the government oversight (from the SEC, et al) is tremendous to begin with.

Finally it seems to me (perhaps in my naivete) that Vanguard, being "owned by its members" and having no real shareholder driver to keep some market price inflated, that it would simply be less susceptible to some sort of systemic fraud like an Enron, nor are they taking tremendous risk like Lehman, etc.  That's not to say they're immune to fraud, but it would seem that there would be no driver for it.

[VagabondMD]

Rose Boy wrote:

Thanks everyone for the opinions, and links to resources. Hopefully this will put my wife’s mind at ease, so she can go back to worrying about whether she passed the boards!

Click to expand...

Yes, that is the sort of thing that ranks very high on the VMD worry scale!

Best of luck.

[artemis]

The risk of Vanguard going belly-up is too small to worry about, but the risk that some sort of IT glitch or fraud issue could block you from access to your account for a while is higher.  On another forum I frequent, a poster who uses Fidelity recounted how the Fidelity in-house hacker team found his wife's account information up for sale on the dark web; his wife's account access was blocked for nearly two weeks while Fidelity changed her account numbers, passwords, etc.  That's reason enough to  spread your money out a bit, I think.

[beagler]

Agree, a much bigger risk is cyberfraud, malware, phishing, man-in-the-middle attack (fake vanguard site at an airport wifi), etc.

Turn on 2 factor authentication (they text you for any buy/sell). Use different passwords for each financial account. Use complex passwords. Even then you can get malware that will spy and log your keystrokes, passwords and browsing.

[bluediamond]

Yes - I had thought about this. Recently I had been consolidating many of my accounts. I had in scottrade, wellfargo advisors, . I had a made a choice of bring it Etrade. All these accounts had stocks worth 700000.  I had only started investing in etf and index funds in the last 6 months.It has been a pain to have accounts in more than 2 places. I think from now on it would be better.

 

I had used Quicken to keep track of the accounts . It still doesnt work well. Recently signed up for Personel capital and its very good and gives you a clear picture of the asset allocation.