Question: The problems with the broker that was involved in the recent silver fiasco have me worried. My stocks are held for me by my broker -- and I sure can't afford to lose them. How safe are they? Would I be safer holding the certificates myself?
Answer: Unless you have a large account, I don't think you have much to worry about. Accounts at most brokerage houses have been insured by the Securities Investor Protection Corp. since its establishment in 1970.
The present limit of protection for your account is $100,000. As much as $40,000 of that amount can be in cash being held for you by the broker. If your account includes a lesser amount of cash, then the balance -- up to the $100,000 ceiling -- is available for your stock and bond holdings.
A few brokerage firms also carry private insurance to supplement the SIPC protection. Check with your registered representative to find out what kind of coverage his firm provides.
But keep in mind that this insurance (whether SIPC or private) gives you no guarantee against market losses on your investments. You can't buy insurance to protect you against betting on the wrong horse -- although brokers and their representatives do have a responsibility to monitor your transactions for suitability, based on what they know of your finacial situation and investment objectives.
Q: Following a suggestion in your column some time ago, I borrowed the cash value of a life insurance policy and invested it elsewhere, at a considerably higher return than the 5 percent interst the loan is costing. But my wife is concerned because she's afraid she will get less insurance money if I die. How can I reassure her?
A: Technically, of course, she's right. At your death the insurance proceeds will be reduced by the amount of the outstanding loan.
But if she's the sole beneficary of your estate, or if you have provided in your will that she gets the alternative investment you mention, then the total estate will not be any smaller because of the loan.
That's because she will get from that investment account the same number of dollars that will be subtracted from the face amount of the insurance policy.
As long as you invested the loan money in a safe investment, there is a dollar-for-dollar exchange and the total number of dollars left to her remains the same.
I hope this explanation reassures her. If it doesn't, and she remains concerned, then I suggest you dispose of the investment and repay the loan.
Unless you're really hurting for every dollar, the extra income here is simply not worth losing sleep over. As long as you can afford the luxury of a minor reduction in income, you should not let any aspect of your financial plan make either you or your spouse uneasy.
Q: The woman who filled out my tax return insisted that I include $8 interest on a small savings account. I thought I only had to report interest of $10 or more.
A: Your tax preparer was right. You are probably confused by the requirement that banks and other payers of interest are required to provide an information statement (form 1099 -- INT) only for those people to whom they paid interest of at least $10 during the year.
But whether you received such a notice or not, you must report all taxable interest received, regardless of amount.
TAX CALENDAR: If you filed a request for an automatic extension for filing your 1979 federal income tax return, next Monday (june 16) is the day of reckoning. REMEMBER TO ATTACH A COPY OF IRS IRS From 4868 (the extension request) to the completed return.
Delayed state returns for Maryland and the District also are due on that date. Residents of Virginia have an extra couple of weeks -- until July 1 -- to file their state tax returns.
If you were out of the country on April 15, you got an automatic extension to June 16. In this case, you must attach to your return a statement that you were outside the United States on April 15, 1980.
June 16 also is the date for filing the second quarterly payment of 1980 estimated federal tax. Estimated tax payments for Maryland and Virginia are are due at the same time; the D.C. payment is due July 15.