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Experts weigh in: Should you invest in one brokerage account or multiple?

Investing in one brokerage account is generally the right move, but it may not be for everyone.

Millennials are on the cusp of surpassing Baby Boomers as the largest living adult generation in the U.S. in 2019, according to PEW Research.
Caiaimage/Paul Bradbury | Caiaimage | Getty Images

If you want to start investing in the stock market, your first step is setting 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, plus many of the top brokerage firms offer personalized services and market data to help guide you as you plan for your future.

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. But is it smarter to have just one brokerage account where you put all the money you want to invest? Or should you spread out your investment funds across multiple accounts at different financial firms?

Select asked the experts and learned that a more simplified approach to investing with just one brokerage account is often best. Yet, there may be a time when opening more than one account makes sense.

If you're thinking about having multiple brokerage accounts, here's what to beware of:

Your investments are still likely the same

Andrew Westlin, a CFP at Betterment, is generally a fan of consolidating your financial plan.

"Far too often, I see clients who think that they are diversifying by having four to five different brokerage accounts, when the investments they own at each firm are the same or very similar," Westlin says.

When your investments across various brokerage accounts mirror one another, you don't really have a more diverse portfolio, and you could be hurting your investments' overall performance.

More accounts means more to manage

Having multiple brokerage accounts also means more work for you.

"[It] makes it much harder to manage on an ongoing basis, especially with regards to rebalancing and risk reduction," Westlin says. Rebalancing happens when you want to adjust your portfolio allocations so to better minimize taking on more risk as the market changes.

Shari Greco Reiches, a behavioral finance expert and wealth manager at Rappaport Reiches Capital Management, also recommends avoiding using multiple brokerage accounts because it can be inconvenient and difficult to monitor them.

The more brokerage accounts, the more communication, such as statements and emails, that you receive. It may also prove more challenging to monitor your portfolio and your overall asset allocation (mix of stocks and bonds) when juggling so many accounts.

You could be missing out on tax savings, plus more

When you distribute funds in more than one brokerage account, you may also miss the threshold to take advantage of certain tax-saving investment strategies such as tax-loss harvesting (which is when you only pay taxes on your net profit).

For example, clients must have invested assets of $50,000 or more before Charles Schwab's automatic tax-loss harvesting kicks in.

Some brokerage accounts may also require a minimum deposit to invest or charge a membership fee. Paying additional fees could potentially eat away at how much you have to invest. A higher balance is not only good for growing your money thanks to compound interest (which increases with an increasing balance), but it can sometimes help you save on fees. Reiches points out that with some brokerages you may pay lower management fees to use a financial advisor as your balance increases.

Investors with lots of cash

For investors who have large cash reserves, there are limits to what is insured by the Securities Investor Protection Corporation (SIPC), should the brokerage firm go under. The SIPC will cover up to $500,000 in investments, but Westlin says this isn't something to worry about when making the decision to go with just one brokerage account.

"It's hard to tell an investor that they should outright ignore these limitations, as there is a reason why the insurance exists," he says. "But assuming you've done due diligence on the investment firm, I've never used this as a reason to limit your investments in any one firm to these insurance coverage amounts."

When you might want more than one brokerage

There are times when investing in multiple brokerages might be the best strategy for an investor.

If you're looking to gain exposure to certain types of investments or asset classes that your current brokerage firm doesn't offer, Westlin argues that you might want to open another account with a firm that does.

"For example, we see many investors at Betterment use us effectively alongside a stock trading app," he says.

Investors with higher investment balances also tend to use more than one brokerage account, says Reiches.

Ready to put your funds into a brokerage account?

If you want to keep your money in one place, the key is to find a brokerage that offers a range of investment products.

For example, SoFi Invest® offers its own robo-advisor, various IRAs (traditional, Roth, SEP and Rollover) and a brokerage account for trading. Plus, SoFi members receive a 0.125% interest rate discount on other SoFi lending products like student loan refinancing and personal loans.

The fintech firm 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, make sure to download the SoFi app to get up to $1,000.

If you're not interested in actively trading, consider a robo-advisor-only option like Wealthfront that invests on your behalf. In addition to its automated investing option, Wealthfront also offers its own IRAs (traditional, Roth, SEP and Rollover), plus a Wealthfront 529 College Savings. You can essentially invest while saving up for retirement and your kid's future, all in one place.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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