Content of the material
- Reasons You Might Want Multiple Brokerage Accounts
- Access to mutual funds
- Research tools
- Margin costs
- Money market rates
- Sign-up bonuses
- Access to your money
- Other features
- SIPC insurance
- Teaching a child to invest
- Are There Advantages To Having Only One Account?
- When More Is More
- How does cash availability work in my account?
- How Your Core Position Works
- When You Should Have More Than One Brokerage Account
- If You Have Lots of Different Investment Goals
- To Take Advantage of Offers and Features at Various Firms
- Features to Take Advantage Of
- To Diversify Your Tax Advantages
- If You Want to Trade Risky Assets
- To Invest for Your Child
- More SIPC Protection
Reasons You Might Want Multiple Brokerage Accounts
These are some of the reasons you might want to have more than one brokerage account.
Access to mutual funds
Many brokerage companies operate their own mutual funds.
For example, Vanguard, Fidelity, and Schwab all have a line of mutual funds that people can invest in.
While there’s nothing stopping you from investing in a mutual fund using a brokerage other than the one that manages it, there can be benefits to using Vanguard to invest in Vanguard funds and Fidelity to invest in Fidelity funds.
For example, transaction costs may be $0 to buy and sell shares of in-house funds. Furthermore, minimum investment amounts may be lower.
If you want to invest in mutual funds offered by different companies, you might want to open accounts at more than one brokerage to take advantage of those perks.
Each brokerage offers tools that its customers can use to research stocks and other investment opportunities.
Not all of these tools are made the same and you may find that one brokerage’s research tools are more powerful or fit your needs more effectively than the tools offered by another company.
If you prefer one brokerage for some reason, such as its fee structure or user experience, but like the research tools offered by a different company, you could open multiple brokerage accounts to access them both.
Some brokerage companies charge commissions when you make certain types of transactions.
Depending on your investing strategy, you might want to open multiple accounts to get the lowest fees possible.
For example, you might use one brokerage for investing in mutual funds but choose a different brokerage for trading stocks and options.
If you want to try your hand at active trading or even day trading, access to margin can be very helpful.
Each brokerage sets margin costs and can change those margin costs as it sees fit. You might want to open a few different brokerage accounts so you can take advantage of whichever offers the lowest margin costs at a particular time.
Money market rates
When your money isn’t invested in the market, your brokerage will keep your cash in a money market fund. The money in this fund will earn some returns, sort of like interest on a savings account.
Each brokerage operates its own money market fund and the interest rates can vary.
If you want to earn the best rate on your uninvested cash, having multiple brokerage accounts gives you multiple money market funds to choose from.
Like banks, brokerage companies often offer sign up bonuses to customers who open a new account.
Typically, earning these bonuses involves transferring funds into your new account, with larger deposits earning larger bonuses.
If you don’t mind a bit of effort and have the money to move around, you can earn hundreds or thousands of dollars in bonuses by opening up new brokerage accounts to earn their sign up bonuses.
Much of the time, you’ll have to keep the account open for a minimum period of time. Closing the account early will mean forfeiting the bonus, so you may wind up having many accounts open at one time.
Another benefit of doing this is that it gives you a chance to try many different brokerage companies. You can compare all of their features and user experience to find the one that you like the best.
Access to your money
No brokerage company is perfect.
Technical problems do happen and if a brokerage’s app or website goes down, you might find yourself unable to access your money. If this happens during a huge market move, you might miss out on a major investing opportunity.
Having accounts at multiple brokerages gives you some insurance against this scenario.
If one goes down and the other stays up, you can make trades using the broker that’s still operating.
Each brokerage has different features, so having accounts with multiple companies can help you get access to the features you desire.
For example, some brokers will let you purchase fractional shares of companies, making it easier to invest specific dollar amounts compared to being forced to buy whole shares. You might like one broker’s mobile app more than another, which is important if you plan to do a lot of trading while on the go.
If you can’t find a brokerage that offers all the features you want, you can use more than one.
Banks offer insurance from the FDIC, reimbursing customers if the bank is unable to return their deposits for whatever reason.
Brokerages have similar insurance from the Securities Investor Protection Corporation (SIPC).
SIPC insurance doesn’t protect you from investments losing value, but if your brokerage goes under, the SIPC will reimburse you for any investments lost in the shuffle.
SIPC offers up to $500,000 in protection (up to $250,000 in cash).
If you open accounts at multiple brokerages, the SIPC limit applies to each account independently, meaning you’ll receive extra protection.
If you have more than $500,000 to invest, spreading it between multiple brokerages can reduce the risk you face from one of your brokerages closing down.
Teaching a child to invest
If you have a child who wants to learn about investing, you can open a new brokerage account jointly with your child.
This gives you the opportunity to manage the account with your child’s assistance, giving them real-world investing experience.
Opening the account with a brokerage firm other than the one you use for most of your money helps you keep the account separate and makes it easier for your child to see how their portfolio performs.
Are There Advantages To Having Only One Account?
Simplicity is sometimes its own reward, and a simplified investing structure is probably best for most retail investors. A single login and password, one source of year-end tax forms, and one brokerage sending emails will keep things easy to manage.
When More Is More
Multiple accounts and the added work they bring may have benefits for a narrow group of investors, said Reiches, who is also a behavioral finance expert whose book Maximize Your Return on Life was published June 25, 2021. Cryptocurrency is one example of an investment that not all platforms trade and a crypto-first brokerage like Coinbase is probably a better place to trade cryptocurrency than a mainstream brokerage. TD Ameritrade, for example, doesn’t offer individual crypto trading. Robinhood offers it, but with limitations.
Alternative investments like private investments and gold coins may also require an account with a specialized brokerage, according to Reiches.
Not all firms offer the same investment vehicles. For example, one may offer more international exposure, while another may have some esoteric investments not offered by another. Fees may also vary slightly. These are things to research. Still, for the average investor, those minor differences may not be compelling enough when considering the added work from managing multiple accounts.
How does cash availability work in my account?
Opening a Fidelity account automatically establishes a core position, used for processing cash transactions and for holding uninvested cash.
How Your Core Position Works
When you sell a security, the proceeds are deposited in your core position. When you buy a security, cash in your core position is used to pay for the trade. This happens automatically—you do not have to “sell” out of your core account to make a purchase. Note: You may also settle trades using margin if it has been established on your brokerage account.
Your core position is also used for processing:
- Electronic funds transfers (EFTs)
- Wire transfers
- Direct deposits
- Fidelity ATM, and Visa Gold Card transactions
- Payments made through Bill Pay service
When You Should Have More Than One Brokerage Account
There are several reasons why having multiple brokerage accounts may be a good idea. We’ll discuss a few of them below.
If You Have Lots of Different Investment Goals
If you have multiple investment goals, separating each into a different brokerage account helps you stay organized. Some of the goals you may be seeking could include:
- The down payment on a home
- A child’s college education
- Starting a business
Spreading these goals across multiple investment accounts can be helpful for several reasons. First, having each goal in its own account helps you keep track of your progress more easily. You can quickly look at each brokerage account and know how much you have saved for that particular goal.
Another reason to use different brokerage accounts for different goals is that you may have different investment strategies. You use one strategy to invest for your retirement that’s 30 years away. And you use a different strategy to invest for your child’s college education in five years.
To Take Advantage of Offers and Features at Various Firms
Each major brokerage firm has certain perks, which is part of why so many popular options exist. And opening multiple brokerage accounts allows you to take advantage of the features and offers from more than one broker.
Some brokers offer a bonus just for opening and funding an account. For example, Charles Schwab offers a bonus when you sign up via a friend’s referral link. And Ally Invest offers a cash bonus for opening and funding a new account with a minimum amount of money.
Opening multiple brokerage accounts can also allow you to take advantage of the different features that each company offers.
Features to Take Advantage Of
Commission-free trading: Many major brokers today offer commission-free trading on stocks (and often ETFs). If you plan to do regular trading, then opening an account with one of these commission-free trading brokers can help you save money.
Low-fee index funds and ETFs: Brokers like Vanguard and Fidelity are known for their low-fee index funds and ETFs. These allow investors to save money and diversify their portfolios while investing for the long term.
Lower margin costs: If you trade on margin, it may be worth shopping around for a broker that offers lower margin costs. You can specifically do your margin trading from that broker while having another account elsewhere.
Better research tools: Most brokers offer some level of education and research tools, but some brokers are specifically known for it. Having an account with one of those brokers, even if it’s not your primary account, gives you access to those tools.
Advanced trading strategies: Not all brokers offer access to advanced trading strategies like options, futures or forex. Instead, you may decide to open a separate brokerage account specifically for those types of trades.
To Diversify Your Tax Advantages
Investing across multiple brokerage accounts allows you to take advantage of the tax advantages that certain accounts offer while still keeping some money in an investment account that’s easily accessible.
Most people start their investment journey in a workplace 401(k) plan. This type of account comes with some serious tax advantages. Your contributions come out of your paycheck before taxes, meaning you don’t pay taxes on your earnings. Your money grows tax deferred and then you’ll pay taxes on your withdrawals during retirement. A traditional IRA has similar tax advantages.
And while the tax advantages of a 401(k) plan are great, you can take things one step further by also opening a Roth IRA or Roth 401(k). With this type of investment account, you make contributions with after-tax money. Then your money grows tax free and you can withdraw it tax free during retirement. Many investors choose to invest in both traditional and Roth retirement accounts to diversify their tax advantages.
Finally, in addition to the tax advantages of retirement accounts, a taxable investing account is a great way to invest for short-term goals or to increase your investments once you’ve met the maximum allowable contributions in your retirement accounts. There are fewer tax advantages (though still some if you hold your investments for more than one year) but plenty of other benefits.
If You Want to Trade Risky Assets
Having multiple brokerage accounts can also be a good idea if you want to diversify your risk. For example, perhaps in your normal taxable brokerage account, you prefer a passive ETF and index fund investing strategy. But you also want to dabble in more advanced or high-risk trading strategies like cryptocurrency, options, margin trading and forex.
You could open a second brokerage account specifically for those activities to keep them separate from your core portfolio. Keeping these accounts separate makes it easier to track the success of your different strategies.
To Invest for Your Child
Another situation where it may make sense to have multiple brokerage accounts is if you’re investing for your child. In this case, you may want a dedicated account just for your child’s investments.
Individuals under the age of 18 can’t open a brokerage account. However, the government created specific types of brokerage accounts — known as “custodial accounts” — designed for investing for minors. These custodial accounts come in two primary forms: UGMA and UTMA accounts. The only real difference between the two is the types of investments they can hold. In most states, you’ll likely open an UTMA account.
So what’s the benefit of investing for your child in a custodial account rather than simply through your own brokerage account? There are two major advantages.
First, money deposited into your child’s custodial account legally belongs to them. It’s considered an irrevocable gift and you can’t take it out once it’s been deposited. As a result, this type of account is a great place to deposit cash gifts from loved ones and ensure it will be there waiting for your child when they reach adulthood.
Another perk of custodial accounts is the tax advantages they come with. In your brokerage account, earnings would be taxed at your tax rate. But earnings in a custodial account are subject to what’s known as the “kiddie tax.” Under the kiddie tax laws, the first $1,100 of your child’s earnings will be tax free. And the next $1,100 will be taxed at your child’s tax rate. It’s not until earnings exceed $2,200 that they’ll be taxed at your tax rate.
More SIPC Protection
The Securities Investor Protection Corporation (SIPC) insures investments in brokerage accounts up to $500,000 per investor per brokerage firm. If your assets exceed $500,000, holding multiple brokerage accounts increases the amount of your money that’s protected. And though the chances of a major brokerage firm going out of business and your losing money is slim, you’ll enjoy the peace of mind that SIPC insurance provides.
Having multiple brokerage accounts can be useful for a number of reasons.
From access to additional research tools to taking advantage of a specific broker’s mutual funds, it can be tempting to open accounts with multiple companies.
However, keep in mind that having multiple accounts means extra paperwork and recordkeeping, as well as more potential fees. That means you should only open multiple accounts if you plan to use them.