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Are you considering opening multiple brokerage accounts? There’s a lot to consider, including portfolio diversification and potential tax implications.
If you can keep your brokerage accounts organized and have a system in place to track your progress, multiple broker accounts might be the answer.
This article highlights the pros and cons of having multiple broker accounts to help you make an informed decision before speaking with a financial advisor.
Why You Should Have Multiple Brokerage Accounts
Having multiple brokerage accounts provides a valuable edge and results in more perks. The advantages include:
- Lower fees: Opening multiple broker accounts means you can pick from the best deals and take advantage of discounts and special offers from several brokers.
- Tax diversification: It makes taxes easier by leveraging a range of investments with unique implications.
- Separating investment strategies: Creating distinct portfolios means you never become too heavily invested in a single strategy or asset class.
- Better research and tools: Using several brokers gives you access to exclusive content from each one, meaning you have better research at your disposal to make more informed decisions.
- Lower margin risk: Spreading out margin loans across multiple brokerage accounts can mitigate excessive losses.
- Interest on cash balances: It’s possible to find higher interest rates on cash balances with some account types, such as a retirement account, which can stabilize your gains.
- Bonuses and promotions: You have access to more annual bonus incentives and promotional campaigns geared toward new customers.
Finally, consider the impact of Securities Investor Protection Corporation Insurance (SIPC). Most major brokers carry this coverage to protect you against catastrophic losses so that you can recover your money.
By spreading the wealth, you have better protection.
Why You Shouldn’t Have Multiple Brokerage Accounts
Having multiple brokerage accounts sounds like a great idea, but there are some drawbacks to address before you dive in:
- Performance tracking: It’s more complicated to manage several brokerage accounts at once, so you need a reliable system.
- Asset allocation: Part of managing multiple brokerage accounts is diversifying, but using different brokerage firms can make asset allocation more challenging. What if you have four brokers, and they all choose to invest in cryptocurrency?
- Staying organized: You can’t use the same login credentials for your crypto account, IRA, E*TRADE, and savings account. As part of your investment strategy, you would need to establish a safe, secure method of organizing them.
- Record keeping and taxes: While having multiple accounts can alleviate some tax responsibilities, it’s a lot more complicated to file the separate reports for each taxable account.
Finally, while having multiple investment accounts can open the door to several promotions and bonuses, it can take others away. Some brokerage firms offer incentives for larger funds that you might lose out on as you diversify.
How to Open a Brokerage Account
Opening a brokerage account is the first step to investing, stock trading, and establishing retirement savings. It can feel overwhelming for beginners, especially with so much financial advice floating around.
With a little research, you can soon be on your way to establishing a sound financial plan.
1. Determine the type of brokerage accounts you need
Do you want an individual or joint account? Individual brokerage accounts list you as the sole owner, whereas joint accounts can have multiple owners. Joint brokerage accounts work well for families and business partners who share similar goals.
It’s also a good idea to familiarize yourself with different types of investments to decide which ones best suit your needs. Consider your goals and current situation to narrow your options.
2. Research brokerage firms
Give this search your due diligence to determine which brokerage firms offer the best features, such as withdrawals, account minimum balances and thresholds. Consider some commission-free (such as Robinhood) and low-cost options (such as Webull).
Compare bonuses, promotions, trading platforms and fee structures. Don’t forget to check out customer reviews, past performance and any perks they offer, such as interactive brokers and trading apps.
3. Choose a brokerage firm
Decide if you want to work with a human stockbroker or if a robo-advisor would, better suit your needs. You can even choose to use an online platform that lets you decide where and how much to invest.
Start with your top pick — the one firm that meets your needs. Keep the other interesting choices on your list if you plan to open multiple brokerage accounts.
Keep in mind that it’s easy to go with the big names, such as Vanguard, Fidelity, and Charles Schwab, but it might not be in your best interest. You might find some better cash bonuses with the large firms, but smaller options might provide more customized service.
4. Start applying
Fill out all necessary paperwork to open your investment trading account with your chosen brokerage firm or individual stockbroker. You will need to provide standard personal information and proof of identity, such as your driver’s license.
Depending on the investment type, you might need to provide additional information. For example, you may need to list beneficiaries for retirement plans.
5. Fund the account
Usually, brokers require you to fund the account prior to placing any orders. You can typically do this by transferring money from your checking account or savings. Note that reputable firms do not permit you to fund an account with a credit card.
Once you establish an account and fund it, you can trade stocks, bonds, and index funds.
Opening multiple brokerage accounts lets you diversify your investments and mitigate some risk. It’s an excellent option for rebalancing your portfolio with different types of accounts, such as crypto, stocks, mutual funds, and exchange-traded funds (ETFs).
A multiple brokerage account strategy can improve your personal finance situation by reducing your portfolio’s volatility without diminishing growth potential.
Weigh the pros and cons before committing to this strategy, and consider seeking advice from reputable financial advisors.
Is it smart to have multiple brokerage accounts?
Although having multiple accounts can diversify investments and limit your risks, it can also involve extra costs and leave you less organized.
How many brokerage accounts can one person have?
A person can have as many brokerage accounts as they want.
Can you have multiple Vanguard brokerage accounts?
Yes, Vanguard permits you to have two brokerage accounts. You may open an individual and a joint account.
How much does it cost to open a brokerage account?
The cost of opening a brokerage account can vary depending on the type of account and the broker you choose.
Cash accounts can cost up to $50 plus an initial minimum deposit, while margin accounts range from $100-$200 per year plus interest charges.
Retirement accounts, such as Roth IRAs, are typically free to open but could include annual maintenance fees.