With scores of new easy-to-use investing apps, brokerage services have lost some of the mystique that once enshrouded them. Now, virtually anyone can access the stock market through a range of services.
But so much choice has also sparked uncertainty: What’s the right brokerage service for you and can you have more than one?
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.)
“When you’re thinking about opening more than one [brokerage account], it really has to do with your time horizon and goals,” says Chelsea Ransom-Cooper, a certified financial planner and managing partner at Zenith Wealth Advisors.
Scott Sturgeon, a certified financial planner and director of wealth management at Falcon Wealth Advisors, echoed that sentiment, saying there are three main questions to ask yourself before opening a brokerage account, whether it’s your first or fifth:
What’s the purpose of the account?
What are my goals?
What’s my time horizon?
Answering these questions can help you decide which brokerage services are right for you. And to help answer them, consider the following reasons it may be beneficial to open more than one.
To keep track of various investment goals
Ransom-Cooper says to start by identifying your investment goals. A few common goals include:
Saving for retirement.
Building up a down payment.
Planning for an expensive trip or other one-time big expense.
Saving for a child’s education.
Active stock trading as a hobby.
Supplementing your retirement savings with an app that focuses on passive investing.
Let’s say you identify three goals: You want to save for retirement, dabble in stock trading and start a fund that could be used for either travel, a wedding or another big-ticket item down the road. To help you achieve these goals, you could open an IRA, use a low-cost investing app to satisfy your day-trading itch, and open another taxable brokerage account for your flexible savings.
Having multiple accounts can help you maintain focus on each account’s goal, Sturgeon says. One strategy he’s seen work well is to set up automatic contributions on a set schedule into a retirement account comprising diversified index funds; the contribution amount and frequency should be based on your retirement savings goal.
“That way, you just don’t have to worry about it,” Sturgeon says. “And it will hopefully grow over time, and you can use it later on.”
Then, with whatever is left over each month (after you’ve taken care of expenses and built up a cash reserve), that amount could be your “play money,” as he calls it, that you could use to test out your stock-picking skills in a trading app.
“I don’t see a downside or a detriment to someone having a fun money account,” as long as it’s funded with those leftover dollars, Sturgeon says. “The asterisk being only keeping a certain portion of your investable assets in those more concentrated or risky types of assets.”
To achieve tax diversification
Another way to look at it, Sturgeon says, is to introduce tax diversification into your portfolio, in addition to diversification in assets.
If you currently only have a taxable brokerage account (typically, that’s what you’re using in a trading app), you’ll most likely pay annual taxes if you earn a profit by selling stocks or receive a dividend. But if you direct some of the money you’re putting into your trading app into a tax-advantaged account such as an IRA, a health savings account or your company’s 401(k), you may ease the tax burden of that taxable account.
“I think that’s an important element to understand out of the gate,” Sturgeon says. “What are the tax ramifications of the different accounts that I’m using, and in what way can I utilize those different structures to set me up both in the near term and over a much longer time frame?”
To benefit from special offerings or features
Some investment platforms offer highly specific benefits or features. Acorns and Stash, for example, offer roundup features, which let you invest spare change into the stock market. This micro-investing strategy can be used alongside other investment apps to help build savings over time.
Other brokerages offer a range of additional services, whether that’s person-to-person financial advice or a robo-advisor with automated rebalancing and tax optimization. Hands-off investors can use these passive strategies for the bulk of their investing but are still free to use an active trading account on the side if they want to learn more about the stock market.
How you mix and match these services all comes back to answering the questions you outlined in the beginning, Ransom-Cooper says.
“What type of investor do you want to be? How involved do you want to be? Let that lead your path,” she says.
Both Ransom-Cooper and Sturgeon agree that what’s most important in choosing brokerage services is outlining your goals first, then choosing the brokerages that best align with them, whether that’s one investment account or many.
The drawbacks of owning multiple brokerage accounts
Opening multiple brokerage accounts can come with additional complexities, though. Ransom-Cooper says it’s easier than you think to forget about the funds in one account, and that as your number of accounts grows, the harder it is to track your overall performance over time.
Sturgeon says it also can be very difficult to track asset allocation across multiple platforms, making it easy to overly concentrate in a particular asset or overlap between funds.
If you do use multiple brokerage accounts, have a plan to stay organized. Apps such as Personal Capital are a great place to start, but for even more help, large brokerages and financial advisors often have software that consolidates and tracks performance, providing a holistic view of your finances.