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Stocks are best kept in brokerage account, not safety-deposit box


Q: My son told me I should put my stock certificates in a brokerage account.

He said a new regulation will reduce the settlement period and could create problems for me.

I'm happy keeping my stock in a bank safety-deposit box and collecting the dividends myself. What is this new law? When does it go into effect? Will it hurt me? What do you recommend I do?

A: I've always been in favor of keeping stocks in a brokerage account, preferably at a discount brokerage firm that does not charge an annual fee or an "inactive" account fee.

The new rule your son mentioned -- called "T-Plus-Three" in Wall Street jargon -- tightens the current five-day settlement period for trades to three days and takes effect June 7, 1995.

After June 7, investors will have to settle trades by the end of the third business day after the transaction (trade date plus three days). For example, if you buy a stock on Thursday, the money has to be at the broker's by Tuesday. If you sell a stock on Thursday, the certificates will have to be there by Tuesday.

People who hold their own stock certificates might have a hard time getting them to a broker in time to settle, especially if the certificates are in a bank safety-deposit box and the brokerage firm is out of town.

Getting certificates to a broker in three days can be done through overnight mail, but the cost is not trivial, and if the certificates are lost, replacing them is an expensive headache.

If you live close to your brokerage branch, you can bring the certificates yourself after going to the safety-deposit box to retrieve them.

Investors should no longer wait for the confirmation in the mail to send in money. The mail might take three days (or longer), and most brokerage firms will assess penalties on late payments.

Ask your broker to tell you exactly how much you owe. In some cases, this can be done while you're waiting on the phone as the trade executes. If not, insist that your broker call you back as soon as the trade is completed.

The simplest solution for most investors is to leave cash, stocks and bonds in a brokerage account. That way, checks can be used to access cash from a money-market account; sales and purchases of stocks, bonds, mutual funds and other investments can be done with one phone call; and dividends and interest are deposited directly into the money-market account.

All brokerage accounts are insured by the Securities Investors Protection Corporation for up to $500 in securities and $100,000 in cash, and most brokerage firms buy additional coverage up to $50 million per account. So, investors can rest easy about putting their securities in street names -- which is what happens when investors deposit their securities with brokerage firms.

In fact, the only disadvantage of brokerage accounts I can think of is that you cannot participate in company-sponsored dividend reinvestment plans, many of which allow you to buy additional shares of the stock at little or no cost to you. But, from your letter, I surmise you are not currently using any DRPs.

For a free brochure on T-Plus-Three, write to the U.S. Securities ,, and Exchange Commission, Office of Consumer Affairs, 450 5th St. N.W., Washington, D.C., 20549, or call (800) 732-0330.

Q: What is a payout ratio, and what does it mean?

A: Dividends are paid out of the profits of the company. The higher the dividend as a percentage of earnings, the less money is available for the company's internal growth (expansion, research and development, new products, modernization, innovations, etc.). The company also has less money for external growth (acquisitions). The ratio of dividend payout to earnings is gauge of a company's ability to increase its future earnings. This ratio is known as the payout ratio.

Those investors who need or want income with the potential of price appreciation should look to companies that have long records ofregular or increasing dividend streams.

Q: My daughter has gotten herself into a financial crisis by overcharging on her credit cards. I have worked with her to try to remedy the situation, but there are still many unpaid bills. Her sole income consists of Supplemental Security Income and welfare payments. Can a collection agency touch any of this income?

A: Collection agencies cannot attach or garnish SSI or welfare payments. However, if those funds are deposited directly into a checking account, Social Security is out of the picture, and the decision is left up to the courts. In fact, to attach any assets, the collector needs a court order or a judgment against the debtor. And I don't think most courts would allow collection agencies to access the SSI or welfare payments of a destitute person.

Susan Bondy founded her namesake financial services company 1980. Write to her in care of The Sun, 501 N. Calvert St., Baltimore, Md. 21278. All letters will be treated confidentially.

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