Investors use a brokerage account to buy and sell securities such as stocks, bonds, and mutual funds. They can set up a brokerage account at various licensed brokerage firms, including full-service stockbrokers, online stockbrokers, and robo-advisors. Investors can transfer money into and out of the account, similar to a bank account. However, unlike a bank account, a brokerage account provides investors access to the stock market and other investments.
Some people maintain a single brokerage account, as it requires less effort. One brokerage account is often sufficient if they tend to invest in similar assets. Managing various brokerage accounts entails working twice as hard to check in on the investments and rebalance their asset allocation. It can also be challenging to track asset allocation and performances across the entire portfolio. If there is one brokerage account that does not get enough attention or money invested in it, investors can run the risk of forgetting about it and losing the investment altogether.
However, opening multiple brokerage accounts also has advantages. Many investors open more than one brokerage account if they want to achieve different investment goals. For instance, investors who want to start a business, save for their children’s college education, purchase a home, and fund their retirement accounts can spread these objectives across multiple investment accounts to track the progress easily. Different brokerage accounts for different goals also entail different investment strategies.
Investors also open multiple brokerage accounts to take advantage of services and perks offered by specific firms. Commission-free trading of stocks is one of the perks some brokers offer account holders. Some firms also provide low-fee index funds and exchange-traded funds (ETFs), enabling investors to save money and diversify their investments for the long term. Licensed brokerage firms are equipped with advanced research tools and trading strategies. Some even provide their clients access to educational resources and reports on the latest economic trends.
Investors may open multiple brokerage accounts to enjoy the benefits of actively trading stocks and bonds while maintaining a checking account to transfer money back and forth without delay. When delays happen, the investors are left with a smaller amount of money to invest quickly when an opportunity presents itself.
The Securities Investor Protection Corporation (SIPC) insures investments in brokerage accounts up to $500,000. If investors have assets exceeding $500,000, opening additional brokerage accounts ensures that the money is protected. Even though the chances of a major brokerage firm going out of business and the investors losing their money are slim, they still enjoy the peace of mind that SIPC insurance provides.
Diversifying tax advantages is also one of the benefits of opening multiple brokerage accounts. Separating retirement-focused investments from investments in other asset classes can help reduce investors’ taxes. For example, people invest in Roth retirement accounts to grow their money tax-free during retirement.
Investors who want to dabble in more advanced or high-risk trading strategies should open multiple brokerage accounts to safeguard certain investment portfolios. For example, separating brokerage accounts that contain index funds and ETFs from more volatile instruments like cryptocurrencies, options, and foreign exchange trades allows investors to track the success of these strategies separately and compartmentalize risk.
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