Can you have multiple brokerage accounts?
The short answer is that yes, you can have more than one brokerage account. There's no legal limit to the number of investment accounts one person can have. And in some cases, having multiple brokerage accounts could be the best move for your financial situation.
It's worth noting that whether you can have multiple brokerage accounts and whether you should are two entirely different questions. It's certainly possible to have more than one brokerage account — and it makes sense for certain investors. But there are some situations where having more than one account is probably overkill.
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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.
When it may make sense to have one broker
As we've discussed, it's definitely possible to have more than one brokerage account. And in some cases, it may make the most sense. But in plenty of other situations, just one brokerage account is plenty. Let's talk about a couple of situations when just one broker could be best.
Managing different accounts can get cumbersome
Perhaps the most notable reason to stick with just one brokerage account is that having and keeping track of multiple accounts can be cumbersome.
First, managing two brokerage accounts means you have twice as much work when it comes to checking in on your investments, rebalancing your asset allocation, etc.
Additionally, having multiple accounts makes it more difficult to track your asset allocation and performance across your entire portfolio. When you have just one account, you can easily open your account and see everything you need to know. But when you have multiple accounts, you may also need a third-party service like Empower to help you keep all of your accounts and investments straight.
Another risk you run with having multiple brokerage accounts is, as the saying goes, “out of sight, out of mind.” If there's one investment account that you don't check as often or doesn't have as much money in it, you run the risk of forgetting about it altogether.
Your accounts likely won't be that diverse from each other
You may think that having multiple brokerage accounts allows you to gain exposure to many different types of investments and funds. And in some cases, that is true. But many investors may be surprised to learn just how little diversity there actually is across their different investment accounts.
Let's say you have an account with a robo advisor where you do the bulk of your investing. But recently, you've been reading about the popularity of ETFs from brokers like Fidelity and Vanguard, so you open two additional brokerage accounts, one where you purchase a total stock market ETF and one where you purchase an S&P 500 ETF.
If you look a bit more closely at your portfolio across both of your accounts, you'd find that you've duplicated your efforts multiple times. First, there's considerable overlap between a total stock market ETF and an S&P 500 ETF. In fact, the overlap is about 75%, according to Morningstar. So you've opened two different brokerage accounts to invest in almost identical funds.
And when you compare your ETF investments to your robo advisor portfolio, you'll find even more overlap. Let's look at Betterment, as an example. According to Betterment's website, its core portfolio is made up of ETFs that aim to capture the broad U.S. stock market. Some of its primary funds include a total stock market fund, a large-cap fund, a mid-cap fund and a small-cap fund.
As you can see, in our examples above, you created three brokerage accounts to invest in essentially the same things. And while it's easy to believe that you do a better job of diversifying your portfolio, it requires real intention to do so. So if you really do just want to gain broad exposure to the stock market — which is the case for many investors — one account is probably enough.
Missed account minimums and perks
Opening multiple brokerage accounts could inadvertently cause you to miss out on some account minimums and perks that various brokers offer.
First, some brokers still have investment minimums on certain funds. For example, Vanguard requires a minimum investment of $3,000 for its mutual funds. Spreading your money across multiple funds could prevent you from investing in some of the funds you're interested in.
Additionally, some brokers have certain account perks once you reach a certain amount of assets in your account. These perks could include waived account fees, automatic tax-loss harvesting, financial planning advice and more. And when your money is in multiple brokerage accounts, you'll have a harder time reaching these thresholds.
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The bottom line
Having more than one brokerage account can have plenty of perks, including helping you diversify your tax advantages or risk, helping you save for multiple financial goals at once, offering you more protection for your money, and more.
But for many investors, having multiple accounts is simply more effort than it's worth, especially if you end up investing in similar assets across your multiple accounts. If you're deciding whether you need multiple accounts or just one, consider your financial goals and the investing strategies you plan to use to reach each of them.
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