Brokerages are giving out free money to lure investors to their new platforms. There’s no limit to the number of investment accounts that a single owner can manage. Many traders wonder whether or not they should have multiple accounts to yield the highest possible returns.
Multiple brokerage accounts are necessary to spread risk, increase returns and achieve different goals. If you’re a beginner, start with two accounts, one for retirement and one for active investing. Open new accounts to take advantage of bonuses with idle cash.
Generally, the ideal number of investment accounts can vary from one investor to another. Read on to see how many accounts would be the most suitable for your trading style.
The Pros of Multiple Investment Accounts
Most investors should have at least two brokerage accounts. One for retirement and another for active investments. This way you can save for retirement and also invest with a shorter time horizon.
Multiple brokerage accounts also helps diversify risk away from any one brokerage. It may also make sense to use a brokerage account for each strategy you want to employ.
Some strategies there are to choose from include:
- Index investing.
- Dividend growth investing.
- Value investing.
- Small cap investing.
The list goes on. But, many of these styles have subcategories. I often invest in international net nets that most brokerages don’t allow access to.
While using different strategies across brokerage accounts is a viable strategy, remember that if you are dividend growth investing and investing in large cap ETF’s there will be a lot of overlapping stocks which may mean you are under diversified.
Advantages of Having Multiple Investment Accounts
One of the biggest reasons for opening multiple investment accounts is for the promotions. However, pricing and access to market beating information also play a big factor.
You Can Enjoy Promotions and Discounts From Brokerage Companies
Brokerages offer promotional bonuses every time a client opens a new account. If you see a promotion that makes sense allocate some additional funds to create and account and reap the rewards.
There are several types of bonuses. For example, I took advantage of Webull’s free stock for moving my shares from one platform to another. The fee for transferring was paid by Webull as well.
Working with different brokerages, you can better compare their features, pricing and research tools. This allows you to make an informed decision about the brokerage that offers the most value to your investments.
You Can Get Lower Margin Costs
Experienced investors, opt for a multiple investment accounts to take advantage of low margin prices and trading costs. Margin is essentially a loan from your brokerage backed by your account balance. It can be used to increase your returns, but be careful it can also work in the inverse.
Companies tend to change and set the cost of this loan according to interest rates. Having several options to choose from can help you take advantage of the lowest-cost margin offered at a given time.
Multiple Investment Accounts Can Help You Improve as an Investor
Each broker offers their clients a variety of research tools and educational guides. These can help them better navigate the market.
By simultaneously working with several firms, you get exposed to a greater amount of available tools and information, allowing you to make informed investment decisions.
Cons of Multiple Investment Accounts
Too many brokerage accounts can cause problems. The issue may come when chasing promotions and you may easily find yourself in a brokerage that may be less reputable. This is why its important to always check how long a brokerage has been around and if its regulated.
Choosing the Wrong Types of Brokerage Accounts
Probably one of the biggest con of having multiple brokerage accounts is when the industry is consolidating. After the dot.com era my brokerage ETRADE decided it was going to focus on bigger fish. Therefore I was left in the cold and had to find a new brokerage, or face paying hefty fees.
Different brokerages have different specializations so if you are decidedly a stock investor and somehow find yourself in a cryptocurrency account it won’t do you any good, especially if you need to invest upwards of 3 months to gain the bonus. All the while exposing yourself to extra risk.
The Advantage of One Investment Account
If you are not planning on being an active investor then one investment account is generally enough. This will often take the form of a retirement account and is managed by a target date fund. But even in a retirement account there can be some do-it-yourself options.
Managing Only One Investment Account Is Simple
Monitoring one portfolio in a single investment account is far less complex. You can even go so far as to invest in one ETF like the Vanguard total world stock ETF (VT) or a target date fund. Ultimately, I think investing in a few different ETF’s offers the best diversification.
My suggested ETF portfolio is as follows:
- S&P 500 ETF.
- Small cap growth or value ETF.
International ETF emerging markets. - International ETF developed markets.
- Corporate bond and or treasury fund.
Spreading your assets across accounts, stocks and ETF’s can lead to over extension and may result in poor management overall. For this reason, focusing on a single investment account is generally the best strategy for casual, more inexperienced investors.
You Can Enjoy More Savings and Deductions
Many accounts charge a fee if you have under a certain amount of money in them. Having one account with all of your money in it will bypass this fee. The threshold is often $100,000 so even with one account it may take you a while to reach it.
Investment Account Tracking Apps
I utilize Mint in order to track my finances. Its associated with Turbo Tax and is a great way to track my net worth and keep a close eye on multiple credit cards.
Since I invest internationally there are very few options when it comes to investment tracking apps.
Currently the only one that I have found that fits my needs is Sharesight. The only downside is its a paid app if you have more than 10 investments, but with my Sharesight link you can at least get an extra 4 months in savings on the premium plan.
Luckily if your only investing in American stocks there is a plethora of tracking apps and brokerages to choose from.
- Quicken.
- SigFig.
- Yahoo! Finance.
- Morningstar.
- SeekingAlpha
My personal favorite is Seeking Alpha. I already go there for a lot of individual stock analysis, and its great for easily keeping track of stocks that are in your portfolio.
Partition or Simplify Your Investment Strategies
Even though there’s no limit to the number of investment accounts you can open, it doesn’t mean that pursuing multiple accounts is always an intelligent trading move.
While more experienced investors can make great use of multiple accounts. Beginner traders may financially thrive simplifying their investing strategy. You can always add more accounts in the future as you discover new an interesting investment strategies.
