Ask an advisor: Should I consolidate my investment accounts?

Ask an advisor: Should I prune my investment accounts?

March 13, 2024 5:19 PM

A reader saddled with many investment accounts is considering cutting down.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

When it comes to investing, does neatness count? With so many financial apps, websites, robo-advisors and other products available, it's easy for a nest egg to become an unruly tangle of accounts. Wealth managers typically encourage diversification, but at what point does that tip into disorganization?

With retirement plans, the conventional wisdom is clear: One 401(k) is better than six or seven. When someone gets a new job, they're encouraged to roll over their previous account into the new one. Failing to do so can be costly: $1.3 trillion is languishing in forgotten or inaccessible 401(k)s, according to the research firm Capitalize.

But when it comes to other investments, the advice usually leans toward more variety, not less. The gospel of diversification is that a healthy portfolio includes many different assets that work in different ways, thus minimizing the damage from any one investment's potential losses. That's why the 60-40 stocks-to-bonds ratio is a rule of thumb, and why advisors sometimes recommend unconventional investments like emerging markets and small-cap funds. It's why the S&P 500 isn't the S&P 5.

But does the same principle apply to the accounts that hold those investments? A video producer in New Jersey is grappling with this question as she juggles a mutual fund, a finance app and a joint investment account with her husband — in addition to her 401(k) and Roth IRA.

Is it time to do some spring cleaning and pare down those accounts? Or is her money better off in a variety of vehicles, however chaotic it might feel? For help, she turned to the experts. Here's what she wrote:

Dear advisors,

My investments feel untidy. I have a number of different accounts with varying balances, and I'm wondering if it would make more sense to consolidate them.

The biggest one is the joint Schwab account I co-own with my husband. It's invested in a mix of stock index funds and bonds, and the balance is about $100,000. We contribute $1,000 every month.

I also have a mutual fund through American Funds, with a balance of about $90,000. I contribute $200 per month.

In addition, I have a "Stash" app — similar to a robo-advisor — that invests in ETFs. It currently has about $8,000 in it, and I contribute $100 per month.

It seems messy to have so many different accounts, and I'm wondering if one big account would grow my money faster. Should I roll everything into the Schwab? Or into the American Funds? How would I do that? Or should I just leave them all alone?

Sincerely,

Neat Freak in New Jersey

And here's what financial advisors wrote back:

Simple is beautiful

Ed Snyder, certified financial planner and co-founder of

Oaktree Financial Advisors

in Carmel, Indiana

I would consolidate into the Schwab account and make all your monthly contributions into it. It won't necessarily make your money grow any faster, but it will make your life simpler by having one account and one monthly contribution instead of three accounts and three contributions every month.

You'll also have one website to go to to see everything and receive one statement. You can make those transfers by contacting Schwab to request the forms to transfer the other accounts in.

Don't rush to consolidate

Laura Cook, CFP and founder of

Flourish Financial Life Planning

in Anderson, South Carolina

Without knowing more about the account types, it would be unwise to recommend combining them for fear of tax or other negative consequences. More than combining them, I would suggest learning why you own the different accounts and what purpose they serve. For example, the American Funds may be intended for retirement while the Stash account may be for "fun" money, giving you a hands-on opportunity to experience and learn more about the stock market.

If you work with a financial planner or advisor, they can explain the different purposes each account serves. It is not unusual to have accounts at different financial institutions when they serve different purposes.

Beyond that, there are ways to view all three accounts in one place without combining them. Many financial institutions offer account aggregation within their websites and apps. This allows you to view all the account balances all in one place.

All of that said, you are not alone in feeling overwhelmed with various accounts. Hopefully, a little more education about the account purposes and viewing them all in one place will empower you and give you a greater sense of peace.

Look out for redundancies

Tricia Rosen, CFP and principal at

Access Financial Planning

in Boston

Having accounts with various custodians is common as people accumulate accounts over time. The downside is not only that it becomes difficult to keep track of the accounts, but managing your assets themselves can become confusing.

For example, I will often see folks who don't realize how heavily concentrated they are in a few large-cap stocks, because various ETFs and mutual funds have the same holdings. In addition, rebalancing to maintain the appropriate allocations to equity and fixed income becomes more difficult across several accounts. Asset location — for example, holding certain types of investments in a tax-deferred account — can significantly add to an investment's return over time. Consolidating accounts makes administration, allocation and asset location decisions much easier.

First find a strategy

Ryan Brueck, CFP and lead financial planner at

ClearWealth

in Davenport, Iowa

I think you would benefit from having an investment philosophy and strategy and aligning your investments with that. These three accounts have different investing strategies based on what you are invested in — indexing vs. actively managed mutual funds. Is that intentional?

If you held the same exact investments in one account instead of three, eliminating other potential variables to the situation, you would not have different performance outcomes. That's not what to focus on. I am a big proponent of simplicity and tend to agree that having three taxable accounts can be messy and lead to disorganized management.

Get clear on what you are trying to accomplish, and invest with that in mind.