Amidst all of the offers and advertisements for low fee stock trades, you may have started to wonder how to choose a brokerage firm when they all seem so similar. While it might seem simple to just have one account, there are some advantages to working with multiple accounts. Between the big banks and the online brokerage companies, they are all going to give you access to the major asset categories. This includes stocks, bonds, exchange-traded funds (ETFs), mutual funds, futures, and options. With all things being equal with access, the difference in the brokerage firms really comes down to what each company has as its strengths.
Diversity of Investments
You may start a retirement account with one company because this is an area of expertise for them. There might be access to expert retirement consultants that give you an advantage or help you feel more confident with your long-term investments. A different brokerage account might be worth opening for your taxable account where you are going to be doing more stock trades. Finding a company with the lowest stock trade fees would be a good option here to save on some expenses. A brokerage company might also have some simulation tools available that can help you project trades before you make them.
Large company stocks and retirement accounts are fairly straightforward investment options that most brokerage firms are going to offer. There are some companies that will also offer access to penny stocks, cryptocurrencies, and the forex market. This is another reason why adding an additional brokerage account makes sense. Not every brokerage company is going to offer access to these types of investments because they are considered more volatile or risky. There are plenty of people that are able to make money in these markets because they do their research and prepare as much as possible before investing any money.
Brokerage companies have a specific definition for what a day trader and a pattern day trader are. These definitions come into play if you are someone that buys and sells the same stock or security on the same day. If you do this enough times within a week then some brokerage firms will only allow you to trade if you maintain a minimum dollar amount within your trading account. The amount is typically $25,000. If you want to avoid maintaining an account with such a large amount of money, you could spread your trading over different accounts.
Education and Costs
One thing that many brokerage accounts are doing now to set themselves apart is offering clients a wealth of research information. This isn’t just limited to research that you have to pore over yourself. Some brokerage firms include live one on one coaching with experts in the field to help you make the best choices for your investment goals. The research that you do have the opportunity to pore over is typically very in-depth and detailed regardless of which brokerage firm you work with. There are some, however, that take the information to a new level with market trend reports, earnings projections, and other market commentaries. A final piece to the puzzle with education is a sort of online schooling that is offered by some of the firms. These training modules are set up to teach you about investing, how to read reports, how to determine if a stock is right for your portfolio and many other useful skills.
Depending on what level of educational tools you need or want this can be another great reason to open accounts with more than one brokerage firm. You have the ability to pick and choose which tools really fit your needs and open your accounts based on that analysis.
One area where brokerage firms really compete with each other is in the area of fees and costs. All it takes is for one company to offer free or low-cost trades for several others to follow suit. This is something that you can take advantage of by keeping tabs on which firms are offering the best deals. When you have built up enough wealth, it can provide some cost savings to open up multiple accounts for trades. In addition to low-cost stock trades, many firms are also lowering costs on ETFs. Some companies are making their funds easier to invest in by lowering the minimum required amount, and others are making mutual funds available for little to no cost. It is important to remember that some of the low-cost brokerage firms aren’t going to be able to offer all the educational support and trading tools so keeping a balance is important.
Account protection under the Securities Investor Protection Corporation or SIPC caps off at $500,000 per broker. If you are someone that has more than that in an account, it can be advantageous to open more than one brokerage account to ensure that all of your investments are insured. This insurance is only in play if a brokerage goes out of business, so it doesn’t prevent you from losing money in your accounts, but it is always good to have your most valuable assets insured.
Access to Assets
When you have multiple goals for your money, it can be easier to manage a portfolio with multiple brokerage accounts. If you are saving for retirement with an IRA or 403b plan, that money cannot be accessed until you are 59 ½ years old. Most retirement accounts are pre-tax money which is why they make for a solid investment choice. If you have the need to pull some of that money out for an unexpected expense, you are going to pay some penalties. Those penalties can really hurt your long-term plan.
In addition to retirement savings, you might have some short-term investment accounts that will allow you to access the funds and the earnings that you are gaining. A taxable account can provide a reliable way to earn a much better return than a savings account would, and give you access to money when you need to withdraw it.
Some brokers have more expertise working with retirement planning, and others specialize in short-term investments. Working with multiple accounts and multiple brokers allows you to manage your money in the most efficient way possible.
Family and Estate Planning
As you move through your career and are able to set aside more money for various financial goals, family planning might enter into the equation. Many parents like to open a financial account for each child they have to help get them off on a strong financial footing when they enter adulthood. These accounts are typically set up so that you are not able to withdraw the money once it is placed in that account. Once the child turns 18 for some accounts or 21 for others, then the control of the account can change hands. This is a great way to set aside some dedicated money for children because access to it is limited once it is started. This also represents another way for you to start a different brokerage account with someone that can help you determine what type of account would be the best for your family situation.
Another type of family financial planning that you may need to prepare for is estate planning. This is an unfortunate but necessary aspect of financial planning. Having a clear estate plan can really simplify the process for what happens to your money should you die. A regular brokerage account typically goes to whoever is named in a will, where other accounts can be set up to have a co-owner or a pay on death beneficiary. This is a typical set up for spouses to use with their brokerage accounts because it also grants both people access to the accounts while they are both alive.
Another option is to set up pay on death brokerage accounts that you maintain control of while you are alive. You determine who the beneficiary of the account will be upon your death. This is another great example of how having multiple brokerage accounts can be an advantage. You could name different beneficiaries for your various accounts so that you determine where those assets go.
There are no rules against having multiple brokerage accounts, and in many cases, there are significant advantages to operating with more than one account. Many brokerage firms have areas that they excel in and you can take advantage of that varied expertise by having accounts with different firms. There are many opportunities that you can take advantage of that a single account might not afford you. It is important to analyze your investment goals, come up with a strategy and keep everything meticulously organized. Diversifying your investing through multiple accounts can help you make the most of your income in the short-term, and make a better long-range plan for the future. Multiple accounts are much more manageable when you have a good organization system to keep track of your information.