What Investment Consolidation Strategies Might Be Wise to Keep In Mind?

Throughout investment industry and financial media sources we constantly hear the message that our money should be diversified. By spreading assets throughout a number of different vehicles, we can take advantage of various market opportunities while helping protect them from some investment risks.

But how much diversification is too much? And what exactly should it cover?

For example, should you spread out your money across brokerages and custodians, or maintain a small number of accounts with one or two financial institutions? As young investors, we are often tempted to try out different investment opportunities in response to broker solicitations, direct mail advertisements, money managers we hear on television or radio, as well as a number of other mediums that seem promising.

But as we near retirement, it’s usually a good idea to begin consolidating accounts. This is because it can often be easier to manage fewer accounts as we grow older. It also can help our loved ones or a hired financial professional step in to find and manage money on our behalf. If you have reached this stage and would like to get your finances organized and consolidated, we can help you decide the best options for your situation. Don’t hesitate to call.

Should you consolidate down to just one brokerage and/or one bank? That may depend on the total value of your assets. Note that the Securities Industry Protection Corporation (SIPC) insures up to $500,000 in each account held at each institution. In other words, if you hold a taxable account and a tax-deferred account at the same brokerage firm, each is insured for up to half a million dollars. Also note that your money is kept separate from the assets of the brokerage firm itself. Therefore, if the company gets into trouble, it can’t tap its customers’ money to bail itself out.1

There are some good reasons to consolidate with one brokerage firm. First of all, it’s simply easier to monitor performance. Second, you also may enjoy additional perks if your total account size exceeds a specific threshold. For example, as a “premium investor” you may be eligible for free advisor consultations, free notary services, etc.

However, just because you consolidate with one broker doesn’t mean you need to put all of your money in one account. In fact, it can be a good idea to vary products for tax diversification. A combination of taxable and tax-free accounts — such as traditional and Roth IRAs (which do not require minimum distributions) – can reduce your tax liability during retirement.

However, be aware of portfolio overlap as you diversify your investments. Your investments — particularly mutual funds and ETFs — may share many of the same securities. When you consolidate, it can be  a good time to cross reference your investments to identify security duplication and concentration. One rule of thumb is to consider holding no more than 10% of your total investment in any particular industry or company. Otherwise, a performance decline may dramatically affect your income during retirement.2

Another idea is to consolidate into a “Target Date” fund which is designed to adjust its allocation mix as you approach the target date (often your retirement date). In doing so, you benefit from a single diversified portfolio managed by financial professionals who periodically rebalance the investment mix to stay on target with its timeline and performance goals.3

Be aware that as working spouses begin to consolidate their individual accounts, they may have many of the same underlying investments. Review all accounts to determine an appropriate asset allocation and retirement timeline for each spouse as well as the household.

If you are considering consolidating multiple 401(k) plans, your choices may be limited by what your past and current plan sponsors allow. Sometimes it’s easier to roll over those assets to a traditional IRA, especially if you tend to change jobs relatively often. The IRA becomes a repository to consolidate old 401(k) assets and maintain a strategic asset allocation without being overly diversified or having too many overlapping securities. Consider your 401(k) options:4

  • Leave the assets in the current 401(k) if allowed by your former employer’s plan.
  • When changing jobs, roll your old 401(k) account assets into your new employer’s plan — if allowed by the new plan. This may be preferable if the new plan permits loans, but be sure to compare new and old plan fees and investment options to ensure you get what you want.
  • Roll over your old 401(k) into an individual retirement account (IRA) — do this with each career/company move to maintain one consolidated reservoir. Be aware that an IRA does not permit loans and there may be negative tax consequences if you have significantly appreciated employer stock.
  • Cash out your old 401(k) only if you need the money. Not only are those funds considered taxable income and subject to an immediate tax withholding, but you also may be subject to a 10% tax penalty if you cash out too young. Moreover, you could miss out on future tax-deferred gains.

Fresno Financial Planner Takeaways 

Soutas Financial your Fresno financial planner would like to remind you of these great points: As we near retirement, it’s usually a good idea to begin consolidating accounts. There are some good reasons to consolidate with one brokerage firm. First of all, it’s simply easier to monitor performance. Second, you also may enjoy additional perks if your total account size exceeds a specific threshold. For example, as a “premium investor” you may be eligible for free advisor consultations, free notary services, etc. Be aware that as working spouses begin to consolidate their individual accounts, they may have many of the same underlying investments. Review all accounts to determine an appropriate asset allocation and retirement timeline for each spouse as well as the household.

Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage Medicare long term care as well as risk management designed to help accomplish those goals.

When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno retirement planning advisor is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc. are not affiliated companies. California Insurance License # OK48173

Other Fresno Financial Advisor Articles 

Soutas Financial & Insurance Solutions Inc. 
333 W. Shaw Avenue Suite 106
Fresno, CA 93704 
(559) 230-1648 
Soutas.com 

Content prepared by Kara Stefan Communications.

1 Teri Geske. Investorjunkie. Feb. 23, 2021. “Can You Have Multiple Brokerage Accounts?” https://investorjunkie.com/stock-brokers/can-you-have-more-than-one-brokerage-account/. Accessed April 2, 2021.

2 T. Rowe Price. Spring 2021. “Focus on Diversification.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

3 T. Rowe Price. Spring 2021. “A One-Stop Approach to Retirement Investing.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

4 T. Rowe Price. Spring 2021. “What Should You Do With an Old 401(k)?” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

This content is provided for informational purposes. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. Neither AEWM, nor the firm providing you with this report are affiliated with or endorsed by the U.S. government or any governmental agency.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

AE Wealth Management, LLC (“AEWM”) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm and is not an affiliate company of AE Wealth Management, LLC. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM. Information regarding the RIA offering the investment advisory services can be found at https://brokercheck.finra.org/.

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