Working with multiple brokerage firms can have some big downsides.
Like many people, I have several different kinds of investment accounts. This includes retirement accounts, as well as a few taxable accounts. But while I have different goals for each of these -- and there are different rules to follow for each one -- there's one thing I've made certain is the same: Every brokerage account I have is held with the same company.
There are a few reasons why that's the case, including the fact I'm rewarded for my loyalty to my brokerage firm with extra credit card rewards points due to the broker's relationship with my card issuer. However, there's one reason that stands out above all others as justification for why maintaining all my accounts with the same broker makes sense.
If you also have multiple accounts, learning about my motivation for sticking with just one broker may convince you to do the same.
The simple reason why one brokerage firm is home to all my accounts
The biggest and most important reason why I have all of my investments with one brokerage firm -- even though I maintain several accounts at that firm -- is because keeping my accounts in one place makes it easier for me to determine if I have the appropriate asset allocation.
Investing inherently comes with risk, but there are ways to reduce the likelihood of suffering permanent losses. Two of the best techniques include building a diversified portfolio of many different kinds of assets, and making sure your portfolio exposes you to the right level of risk tolerance given your investing timeline and preferences.
Employing both of these techniques is much easier if you have all of your money with one brokerage firm instead of using different brokers for different kinds of accounts. That's because you can sign into one account and see at a glance what different kinds of investments you hold, and what percentage of your total combined portfolio is invested in each different asset.
If you have multiple separate brokerage accounts, on the other hand, you'd have to sign in to each one separately and compile a combined list of investments to make sure you aren't too heavily invested in one asset or industry, and to ensure you've been neither too conservative nor too aggressive. Manually compiling all this information can be more trouble than it's worth, and you may be better off opting for my strategy of having all your accounts kept with the same company.
The importance of researching different brokerages
Now, the downside is, not all brokerage firms offer all these account types. For example, some popular brokers have taxable accounts only with no opportunity for retirement savings. If your preferred brokerage firm offers only one type of account, you may be willing to accept the fact that assessing your asset allocation will just be a little harder. But you need to realize the added challenge you're taking on and the fact you could be exposed to more risk.
Rather than making life harder, and potentially jeopardizing the performance or your investments, consider doing a little more research to find out if there is a brokerage firm that offers all the account types and features you need. You may be surprised to find what's out there, and may be able to make a change that simplifies your investing process.
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FAQs
Many people have several types of brokerage accounts, including both taxable and retirement accounts. Keeping all your brokerage accounts with the same company can make it easier to keep a balanced, diversified portfolio.
Is there a reason to have multiple brokerage accounts? ›
Having an account with multiple brokers lets you evaluate the user interface, features and overall experience before investing, helping you decide which platform aligns best with your needs.
Is it wise to have all your investments with one company? ›
Spreading your assets across different brokerage accounts can help protect you against potential fraud or unauthorized access, Roller says. If one broker has a breach, then you can still trade with another investment firm. The safety of your funds is also a concern.
How many brokerage accounts are too many? ›
In some ways, a brokerage account behaves similarly to your everyday checking or savings account: You can transfer money into and out of them, and there's no limit to how many accounts you can actually open.
Should I consolidate my brokerage account? ›
When you consolidate, it's much easier to take charge of your strategy and help keep your intended asset allocation on track. Moreover, rebalancing can be a much simpler task with an integrated view. It can be easier to form a clear picture of your performance and investment mix when it's all in one place.
Why should no one use brokerage accounts? ›
If the value of your investments drops too far, you might struggle to repay the money you owe the brokerage. Should your account be sent to collections, it could damage your credit score. You can avoid this risk by opening a cash account, which doesn't involve borrowing money.
Is Charles Schwab or Fidelity better? ›
Fidelity and Schwab are both excellent choices. These investment firms offer thousands of funds. Each company offers 24/7 live support with financial professionals. There are some nuances, such as Fidelity being better for crypto traders and Schwab being more optimal for futures traders.
How much money is safe to keep in a brokerage account? ›
Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade. Assets in your brokerage account are protected up to $500,000 per investor, including a maximum of $250,000 in cash by SIPC in the event a SIPC-member brokerage fails.
Is it safe to have over $500,000 in a brokerage account? ›
Bottom line. The SIPC is a federally mandated, private non-profit that insures up to $500,000 in cash and securities per ownership capacity, including up to $250,000 in cash. If you have multiple accounts of a different type with one brokerage, you may be insured for up to $500,000 for each account.
Should I have all my investments with one advisor? ›
In most situations, it will probably be in your best interest to have your financial advisor provide advice on your entire portfolio. Although, there are some specific circ*mstances where that may not apply.
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How many stocks should I have in my brokerage account? ›
Understanding the Ideal Number of Stocks to Own
The more equities you hold in your portfolio, the lower your unsystematic risk exposure. A portfolio of 10 or more stocks, particularly across various sectors or industries, is much less risky than a portfolio of only two stocks.
Should I keep all my money in a brokerage account? ›
If you are OK with possibly losing some of your cash in exchange for a good chance of earning a generous return on your investment, then a brokerage account is a better choice. If it's critical you have the money -- say, because it's for a down payment for a home you're buying soon -- choose a savings account.
What is the best allocation for a brokerage account? ›
Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.
Can you merge brokerage accounts? ›
It's also important to keep in mind that while brokerage accounts may be combined, you cannot combine retirement accounts like 401(k)'s or IRAs. Since 401(k) accounts are tied to employment at a company, only the employee can enroll and contribute to one.
Should I rebalance my brokerage account? ›
Consider rebalancing your portfolio regularly or when your portfolio drifts too far from your desired allocations. This will help your portfolio align with your goals and risk tolerance.
Is it better to have multiple trading accounts? ›
Having multiple demat accounts offers several advantages. It provides you with diverse perspectives on buying and selling stocks, granting access to various research insights and platforms offered by different stockbrokers.
Should I avoid investing more than $500,000 with a single brokerage firm? ›
Is it safe to keep more than $500,000 in a brokerage account? It is safe in the sense that there are measures in place to help investors recoup their investments before the SIPC steps in. And, indeed, the SIPC will not get involved until the liquidation process starts.
Is it illegal to have two brokers? ›
There's nothing wrong with opening multiple brokerage accounts. In fact, it may be beneficial.
How many brokerage accounts can you own? ›
There's no legal limit to the number of investment accounts one person can have. And in some cases, having multiple brokerage accounts could be the best move for your financial situation. It's worth noting that whether you can have multiple brokerage accounts and whether you should are two entirely different questions.
