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If you want to start investing in the stock market, your first step is to set up a brokerage account.
You can think of this account as the vehicle that transports your money to your investments. Brokers can execute trades on your behalf, and many of the best brokerage firms offer personalized services and market data to help you plan for your future.
In some ways, a brokerage account behaves the same as your checking or savings account: you can transfer money into it, and there is no limit to the number of accounts you can. actually open up. But is it smarter to have a single brokerage account where you put all the money you want to invest? Or should you spread your investment funds across multiple accounts with different financial companies?
Select interviewed the experts and learned that a more streamlined approach to investing with a single brokerage account is often the best. Still, there may come a time when opening more than one account makes sense.
If you plan to have multiple brokerage accounts, here’s what you need to be wary of:
âFar too often I see clients who think they are diversifying by having four to five different brokerage accounts, when the investments they have in each company are the same or very similar,â says Westlin.
When your investments in various brokerage accounts mirror each other, you don’t really have a more diversified portfolio and you could hurt the overall performance of your investments.
Having multiple brokerage accounts also means more work for you.
“[It] makes ongoing management much more difficult, especially when it comes to rebalancing and reducing risk, âsays Westlin. Rebalancing occurs when you want to adjust your portfolio allocations to better minimize additional risk taking as the market moves.
Shari Greco Reiches, expert in behavioral finance and asset manager at Rappaport Reiches Capital Management, also recommend avoiding using multiple brokerage accounts as it can be inconvenient and difficult to monitor them.
The more brokerage accounts, the more communications you receive, such as statements and emails. It can also be more difficult to monitor your portfolio and overall asset allocation (mix of stocks and bonds) when you’re juggling so many accounts.
When you distribute funds to more than one brokerage account, you may also miss the threshold to take advantage of certain tax-saving investment strategies, such as harvesting tax losses (i.e. when you only pay taxes on your bottom line).
For example, clients must have invested assets of $ 50,000 or more before that of Charles Schwab the automatic harvesting of tax losses comes into play.
Some brokerage accounts may also require a minimum deposit to invest or charge a membership fee. Paying additional fees could potentially eat into the amount you have to invest. A higher balance is not only good for growing your money through compound interest (which increases with a growing balance), but it can sometimes help you save on fees. Reiches points out that with some brokerage firms, you may pay a lower management fee to use a financial advisor as your balance increases.
Investors with a lot of money
For investors with large cash reserves, there are limits to what is insured by the Securities Investor Protection Corporation (SIPC), in the event of bankruptcy of the brokerage firm. SIPC will cover up to $ 500,000 in investments, but Westlin says that’s not something to worry about when making the decision to go for a single brokerage account.
âIt’s hard to tell an investor that they should ignore these limitations altogether, because there’s a reason insurance exists,â he says. “But assuming you did your due diligence on the investment firm, I never used that as a reason to limit your investments in a firm to those amounts of insurance coverage.”
There are times when investing in multiple brokerage firms may be the best strategy for an investor.
If you are looking to gain exposure to certain types of investments or asset classes that your current brokerage firm does not offer, Westlin argues that you may want to open another account with a firm that does. .
âFor example, we see many investors at Improvement use us effectively with a stock trading app, âhe says.
Investors with higher investment balances also tend to use more than one brokerage account, explains Reiches.
If you want to keep your money in one place, the key is finding a brokerage that offers a range of investment products.
For example, SoFi InvestÂ® offers its own robo-advisor, various IRAs (traditional, Roth, SEP and Rollover) and a brokerage account for trading. In addition, SoFi members get a 0.125% discount on other SoFi loan products, such as student loan refinancing and personal loans.
The fintech company will cover up to $ 75 of any transfer fees your brokerage may charge when you transfer an account to SoFi. And when you open an active SoFi Invest brokerage account, be sure to download the SoFi app to get up to $ 1,000.
If you are not interested in active trading, consider a robo-advisor-only option like Wealth front who invests on your behalf. In addition to its automated investing option, Wealthfront also offers their own IRAs (traditional, Roth, SEP and Rollover), plus a Wealthfront 529 University Savings. Basically, you can invest while saving for your child’s retirement and future, all in one place.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.