After years of accumulating assets, you likely have money spread across several different accounts—like bank accounts or 401(k)s from old jobs. Some investors may not see this as an issue because they believe they’re following advice they’ve heard for years: “Don’t put all your eggs in one basket.”
While that investing adage rings true in terms of your investment mix, you should know about an important exception to the rule. When it comes to where you hold your accounts, consolidating investments has many benefits.
What Does Consolidation Mean?
Consolidation is, essentially, a tactic to streamline your accounts. It may involve moving all your investments to one or two firms, or combining retirement assets into one account. Overall, the goal of consolidation is to provide a clearer view of your financial picture and make managing your money more efficient.
Five Reasons for Account Consolidation
Better manage diversification and risk
Diversification is the intent behind the eggs and basket analogy. It’s the idea of spreading your investments across different asset types that don’t react the same when market conditions change. Over time, this can give you a better chance of weathering market ups and downs.
So why would spreading your accounts across various firms matter? With that approach, you risk creating duplication in your portfolio, defeating the diversification you’re trying to achieve. For example, two funds at two different companies could hold the same securities or a higher concentration of a specific sector than you intended.
On the flip side, you could be missing out on a sector or security type important to your investing goals. Bringing your accounts together gives you a more accurate view of your holdings, allowing you to make better investing decisions aligned with your long-term plan.
Simplify portfolio management and recordkeeping
More accounts mean more paperwork, statements and tax forms. The time you spend on your investments shouldn’t be caught up in monitoring the details of multiple accounts. Consolidating your accounts can make it easier to keep track of purchases, exchanges and withdrawals. If you’re an IRA investor taking required minimum distributions, this can be critical. Missing your annual withdrawal due to a clerical mistake could be a costly error.
Incur fewer administrative costs
Investment companies often charge account-related fees, such as custodial fees for retirement accounts or maintenance fees for servicing smaller accounts. Combining your accounts gives you higher balances, which may mean such fees won’t affect your assets.
Make legacy planning less stressful
Estate planning is an integral part of creating your family’s financial legacy. Making sure your assets are distributed according to your wishes can be difficult if the appropriate documentation is not in order at each company. Consolidating your retirement assets at one firm can mean less paperwork and streamline the process for you and your beneficiaries.
Build a closer relationship with your investment professional
Creating the right investment plan for you depends on your investing profile. This means understanding your situation—your investing goals, how much time you have to invest and your risk tolerance. Rather than taking the time with multiple companies, partnering with one firm allows you to focus on your current objectives and helps you more easily manage your portfolio as your needs change.
Ready to Consolidate? Take Note
When you’re ready to consolidate your accounts under one firm, do your homework. Look for an investment company that:
- Provides a variety of options for building your portfolio
- Offers an assortment of services and complimentary guidance
- Charges reasonable fees and expenses
- Reduces costs and fees as your investments grow
Before you move your money, ask your current investment providers about potential consequences, such as taxes, penalties, charges or specific fees for liquidating or transferring your assets. That way, you won’t have any surprises that follow your transaction, or at tax time.
Need Help with Consolidation?
The opinions expressed are those of Brent Hoskins and are no guarantee of the future performance of any American Century Investments fund.
This information is for educational purposes only and is not intended as investment or tax advice.
Diversification does not assure a profit nor does it protect against loss of principal.