Few investors would argue the benefits of diversifying a portfolio, but there is a time when putting your eggs into just one "basket" may actually work for the better—when you consolidate your accounts with one service provider.
Besides the obvious perks—simplicity and convenience—there are other benefits attached to combining your assets under one roof. These include more effective asset allocation and diversification, potentially lower fees, higher service levels, and better planning, among others.
So, with all the advantages made possible by consolidating, why do so many investors still have their money spread among several investment firms? Some people think they're diversifying more broadly, although, in fact, they may be duplicating investments at different firms.
Now more than ever people need a single relationship they can trust.
Then there are those who have simply ended up with accounts in different places due to job changes and 401(k) plan balances left behind at former employers. Those 401(k) plan assets are often better off rolled into one IRA with one provider to expand the range of investment choices and to manage the assets more effectively.
Taking control of your portfolio and making your investments work effectively for your goals are among the most compelling reasons to consolidate multiple accounts. If you have investments in several locations, it's difficult to stay in control of your overall portfolio. It's also complicated to make your investments work together. In fact, you could be duplicating exposure to certain asset classes.
Financial services providers might categorize assets differently, so it's hard to get an accurate view of your overall allocation. Worse you might not realize how far off track your asset allocation has become, unless you're constantly monitoring every account in every place. For most individuals, that's tough to do.
When you consolidate, it's much easier to take charge of your strategy and keep your intended asset allocation on track. After market events like our most recent downturn, you can assess the damage to your overall portfolio and react prudently. Moreover, rebalancing is a far simpler proposition. If the money is in one place, rebalancing takes one set of transactions, rather than several through multiple providers.
Consolidating also makes it easier to catch overlap in your holdings and improve your portfolio's diversification. These days, many firms offer similar investments or funds that invest in the same securities. So you're not necessarily diversifying more broadly by investing through multiple providers.
If you're investing through multiple providers, you might be paying more fees than necessary. This is because financial providers typically need assets and trading to reach certain thresholds before offering price breaks. Typically, the more assets you move to one financial services provider, the more opportunities you may have to avoid unnecessary account fees, as well as to pay lower fund expenses and qualify for lower commissions on brokerage trades.
Consolidating may also improve the quality of certain planning activities, such as retirement income planning. Typically, you need to determine a sustainable withdrawal rate, meet minimum required distributions, and monitor your assets to make sure you're not depleting your resources too quickly.
The financial details of your day-to-day life are complicated enough. Why make it harder by trying to track your money in multiple places? Doing so takes time and effort that many people just can't sacrifice.
Think about how much easier it would be for your accountant to get one set of 1099 forms at tax time, rather than several.
Clearly, consolidating is a decision that warrants some time and consideration. But the potential benefits are far too compelling to ignore. You could improve and find it easier to maintain your asset allocation, as well as diversify your portfolio more effectively. You might find opportunities to save money, both through improved tax efficiency and the lower fees often associated with having higher asset levels at one provider. Most of all, you'll have a chance to plan more effectively and to take control of your finances. And that's a move that, in the end, could improve your overall financial picture.
https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/consolidate-accounts-and-conquer&topic=financial-planning
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