Consolidating Multiple Investment Accounts Is a Good Idea
Blog

Why Consolidating Multiple Investment Accounts Is a Good Idea

Having a collection can be very fulfilling. My Mom collects Cat’s Meows, which are little painted wooden buildings with a small black cat painted on each of them. She probably has over a hundred of them all over her kitchen. When she goes on vacation, she’ll often get a new one painted like one of the buildings she visited on her trip. Each one is signif­icant to her in some way or reminds her of a different time in her life.

By the time people are in their 50s many of them have developed a different type of collection; a collection of accounts at various financial insti­tu­tions with different invest­ments in each of them. There are two varieties of these collectors: inten­tional and uninten­tional.

Uninten­tional account collectors are the folks that changed jobs a few times, have a 401(k) from one job, and a SEP-IRA from another job, that brokerage account they set up with their college buddy who became a stock­broker, and three checking accounts and multiple IRAs all at different banks. The problem is that every one of those accounts probably has different invest­ments and it’s very likely that they don’t have a good under­standing of how each account fits in with the other accounts. If you have numerous accounts with different stocks, bonds, or mutual funds that you’ve collected over the years, can you honestly say that you know what your asset allocation is at any point in time? I doubt it.

Inten­tional collectors are a slightly rarer breed. Perhaps they’ve heard someone say “Don’t put all your eggs in one basket” and think that means they should have accounts at a number of different financial insti­tu­tions so their invest­ments are “diver­sified.” The problem this thinking creates is that they will often own some of the same or similar invest­ments at each financial insti­tution which can result in the illusion of diver­si­fi­cation.

In either case, these “collec­tions” of accounts can be confusing. Every financial insti­tution could have different rules and forms. Each financial insti­tution would have their own customer service staff, usernames and passwords and vary in allowable invest­ments. You can multiply each one of these variables by the number of different insti­tu­tions you work with and you can quickly realize how compli­cated it can be to keep every­thing straight in your mind.

We believe that you should pick one insti­tution that you trust and then start the process of consol­i­dating your “collection” there. The biggest advan­tages of doing this are:

  • reduced complexity
  • having a consistent service experience
  • under­standing how your account is actually positioned
  • centralized tax reporting
  • poten­tially reduced costs

Managing your invest­ments can be difficult enough at one firm, why add additional complexity by working with multiple financial insti­tu­tions?