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.
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.
Read more
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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.
FAQs
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.
Is it better to have more than one brokerage account? ›
If you're considering whether it's worthwhile to open a second, third or 10th brokerage account, here are some points to keep in mind: Multiple brokerages help diversify and manage risk. Work toward financial goals with a holistic approach.
Is it better to invest in one thing or multiple? ›
Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will have a smoother ride.
Is it safe to keep more than $500000 in one brokerage account? ›
They must also have a certain amount of liquidity on hand, thus allowing them to cover funds in these cases. What this means is that even if you have more than $500,000 in one brokerage account, chances are high that you won't lose any of your money even if the broker is forced into liquidation.
Should I consolidate brokerage accounts? ›
Holding your investments at a single financial firm can help provide a complete view of your portfolio. Seeing all your investments in one place may help you track potential tax opportunities more effectively and reduce fees and commissions.
Is there a downside to having multiple brokerage accounts? ›
More accounts means more to manage
″[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.
Is it smart to have multiple brokerage accounts? ›
Just as diversifying your investment portfolio across different asset classes mitigates risk, having accounts at multiple brokerage firms can provide a form of diversification. It ensures that your assets are not concentrated in one place, reducing the impact of potential issues with a single broker.
What is the 3 1 rule in investing? ›
Many real estate investors subscribe to the “100:10:3:1 rule” (or some variation of it): An investor must look at 100 properties to find 10 potential deals that can be profitable. From these 10 potential deals an investor will submit offers on 3. Of the 3 offers submitted, 1 will be accepted.
Why shouldn't a person invest in only one or two stocks? ›
It is harder to achieve diversification. Depending on what study you are looking at, you must own between 20 and 100 stocks to achieve adequate diversification. Going back to portfolio theory, this means more risk with individual stocks unless you own quite a few stocks.
What is the rule of 2 in investing? ›
The 2% rule is a restriction that investors impose on their trading activities in order to stay within specified risk management parameters. For example, an investor who uses the 2% rule and has a $100,000 trading account, risks no more than $2,000–or 2% of the value of the account–on a particular investment.
You can earn a better return in a brokerage account than in most other assets, so you can't have too much money in one. However, you do need to maintain the right asset allocation, which means you need to have a sufficient amount of money in savings too.
How much money should I keep in one brokerage? ›
Determining how much money to put into a brokerage account largely depends on how much income you have available and what short-term and long-term goals you have. A good rule of thumb to follow is not to put any money in your brokerage account that you'll need within the next two to five years.
Where do billionaires keep their money? ›
Common types of securities include bonds, stocks and funds (mutual and exchange-traded). Funds and stocks are the bread-and-butter of investment portfolios. Billionaires use these investments to ensure their money grows steadily.
What is the downside to a brokerage account? ›
Cons of Brokerage Accounts
Depending on the type of assets you hold in your brokerage account, you may owe capital gains taxes, dividend taxes, or other taxes on your holdings.
Should you manage your own brokerage account? ›
Managing your portfolio on your own will keep you in control of your investments. It can also save you money by avoiding management fees and other costs that come with hiring a professional to run your investment account.
Should I combine my investment accounts? ›
Consolidating your investments may help you get a clearer picture of what's in your portfolio. Having multiple investment accounts with different firms can make identifying overlaps or gaps in asset classes difficult.
Is it OK to have two brokers? ›
When to open multiple brokerage accounts — and why. The second question is easy to answer: Yes, you can have multiple brokerage accounts. And it may even be beneficial, provided you can answer the first question: How do you know which brokerage services are best for you? (Learn how to choose the best online broker.)
How much money should you have in one brokerage account? ›
Determining how much money to put into a brokerage account largely depends on how much income you have available and what short-term and long-term goals you have. A good rule of thumb to follow is not to put any money in your brokerage account that you'll need within the next two to five years.
How much money is too much for a brokerage account? ›
Since you can expect a good return over time if you make informed choices, you can't really have too much money in your brokerage account. After all, you want as much money as possible earning the highest possible returns. This is different from, say, keeping your money in a high-yield savings account.
How many stocks should I have in my brokerage account? ›
The question is when has volatility been reduced enough such that the marginal benefit of an additional holding is immaterial. Most studies use the fully diversified portfolio as a benchmark and then derive that a portfolio of 20-30 stocks achieves a 'similar' risk profile as the target portfolio.
