Rather I am interested in a different form of risk, specifically the counter-party risk of having the majority of one's assets in a single brokerage/investment management company. Vanguard is the big dog when it comes to mutual funds and just after BlackRock for ETFs. Not all of these funds are held by Vanguard, of course.
Jacob alluded to (as I read it) a sort of bank run possibility on Vanguard which I haven't been able to understand:
As I understand it Vanguard would not be at risk of losing customer funds like banks (which make loans and use forms of leverage). Vanguard does not offer cash redemptions but only Bank2Bank transfers (thereby offloading certain risks). Maybe you could sue Vanguard to get cash..jacob wrote:@bryan - Fund companies will have a checking account with their broker and/or bank just like the rest of us individuals or like other companies. Alternatively, they'll be paying interest to have a line of [revolving] credit. It's not like they have a physical stash in the basement.bryan wrote:hmm, I didn't think it was possible to opt for cash? pretty much only check or Bank2Bank. It's not like vanguard is really in the banking business giving loans or having to keep physical gold or real estate etc?jacob wrote: Conversely, since so much of the market is now held by just a few companies (e.g. vanguard et al), those companies need to keep cash at hand because in case of mass redemptions, there are now far few people (individuals) left to take the other side. That's the problem with public's lack of strategy-diversification.
Perhaps @jacob was alluding to simply the first issue of a market crash versus an actual counter-party risk?
Is there any counter-party risk of using Vanguard brokerage (or funds) to be realistically concerned about? Perhaps their systems would buckle under heavy loads or transactions could be delayed.