It fortunately looks like Silicon Valley Bank depositors are going to be made whole. But, if nothing else, the SVB collapse has highlighted the importance of diversifying where you keep your personal money.

I’ve written several posts about investment diversification. All of them have been about diversifying in what you invest. But I think it’s also important to diversify where you invest. In short, even though it’s pretty paranoid, I think you should invest across two–and potentially more–brokerages.

Let’s start with cash. The FDIC covers bank deposits and, effectively, insures up to $250K in cash per person per bank. While I think you basically shouldn’t have more than $250K in cash right now–short duration treasuries are paying almost 5%, more than any high yield savings account–if you do have more than this in cash for some reason, I would obviously split that across several banks.

Most people, though, have most of their liquid net worth in investments like stocks, bonds, etc. Almost everyone invests through brokerages like Vanguard, Charles Schwab, BoA, etc.

The good news is brokerages, unlike banks, have to keep your investments separate from the operating cash of the brokerage. So if the brokerage goes down, in theory your investments should be safe and will eventually transfer to a solvent brokerage.

And there’s another layer of protection. Almost all brokerages are part of the SIPC and they insure individual brokerage accounts up to $500K per person. That means even if someone at the brokerage account committed fraud and stole your investments, you should be covered up to $500K per brokerage.

Nonetheless, I still think it’s worth diversifying your investments across multiple brokerages. For one, if you’re fortunate enough to have more than $500K in investments, you’re just not fully covered by SIPC insurance. We’re seeing that play out with uninsured deposits at SVB. If someone at the brokerage goes rogue and steals your funds, you don’t want them to be able to steal everything except $500K.

But even if you have less than $500K invested, if your brokerage goes down and there wasn’t fraud, the process of transferring your accounts to another brokerage could take months (FINRA says 1-3 months on their site). Or, if there was fraud, the process of returning your investments to you will likely be longer. This all assumes records were properly kept and everything goes smoothly…

Maintaining multiple brokerages has some costs as it’s more work to manage, you have to receive tax documents from multiple sources, etc. This isn’t ideal. But it’s really not that hard to manage accounts in multiple places. And there’s no tax implications if you simply transfer shares between brokerages.

At the end of the day, I sleep better knowing my investments aren’t all in one place. Diversify not only what you invest in, but where you invest.

As always, this post is not investment advice!