The Benefits of Managing Multiple Brokerage Accounts
In today’s world of easily accessible investing platforms, you might wonder if there’s any advantage to having multiple brokerage accounts. The answer is yes. There are several benefits to diversifying your brokerage portfolio, each tailored to your unique financial goals and investment strategies.
**Diversification of Investment Options**
Different brokerages offer unique investment products and services. By having accounts with multiple brokers, you can access a wider range of investment options, including exclusive funds, stocks, or alternative assets that may not be available on a single platform. For instance, 42% of people with a brokerage account also have an IRA, highlighting the common practice of maintaining multiple accounts.
**Risk Management**
Just as diversification is key in an investment portfolio, spreading your assets across multiple brokerages can reduce the risk associated with a single institution’s failure or limitations. This strategy helps safeguard your investments from brokerage-specific issues.
**Specialized Features and Tools**
Some platforms offer specialized tools or features that cater to specific investment styles. For example, one brokerage might provide superior research tools for active traders, while another might offer a robust robo-advisor for passive investors. Utilizing multiple accounts allows you to leverage the best features from each.
**Tax Advantages**
Incorporating tax diversification into your investment strategy can be as crucial as diversifying your assets. Profits and dividends from a standard taxable brokerage account are subject to annual taxes. However, by allocating some of your investment funds into tax-advantaged accounts like IRAs, health savings accounts, or 401(k)s, you can potentially reduce the tax liability associated with your taxable account. This approach allows you to strategically manage the tax implications of your various accounts, setting you up for financial success both now and in the future.
**Access to Different Levels of Service**
Some brokerages offer premium services, personalized advice, or lower fees to clients with higher account balances. For example, Fidelity offers its wealth management clients, those with more than $250,000 in professionally managed assets, the Fidelity Rewards+ program. This program provides higher yielding, lower expense money market funds based on three tiers of eligible assets, with yields ranging as high as 5.2% to more than 5.3% on these elite funds. By diversifying your accounts, you can access these benefits without needing to consolidate all your assets under one roof.
**Promotional Offers**
Brokerages often run promotional offers for new accounts, such as cash bonuses or free trades. For instance, Charles Schwab provides a sign-up bonus when you register using a referral link from a friend, and Ally Invest grants a cash bonus for initiating and funding a new account with a specified minimum deposit. By opening multiple accounts, you can take advantage of these promotions, boosting your investment capital.
**Backup and Redundancy**
In the unlikely event that one brokerage faces technical issues or downtime, having another account ensures that you can still execute trades and access your funds.
**Cons of Having Multiple Accounts**
Managing multiple brokerage accounts can introduce complexity and increase the likelihood of overlapping investments, leading to a less cohesive asset allocation strategy. Additionally, the added paperwork and potential for neglecting accounts can make it challenging to maintain a clear overview of your financial portfolio. Managing multiple accounts requires more time and effort, and there’s a higher risk of incurring fees, especially if you’re not meeting minimum balance requirements. Balancing several accounts can be overwhelming, leading to errors like missed payments or oversights in budgeting.