DaVinci famously said, “Simplicity is the ultimate sophistication." Yet, it is not uncommon for me to encounter an investor who has multiple accounts with multiple companies. This can be a problem because having too many accounts in too many places can not only cause confusion, it can potentially reduce your overall investment return.
I worked with a client last week who had ten retirement accounts. The problem is, she didn’t even realize that she had all of the accounts until she really started digging. They were from the multiple employers that she had worked with over the years, accounts that she had set up and not monitored, and accounts that were her ex-husband's but she had not properly transferred after her divorce. In short, they were from life. As we become more transient in jobs due to the changing nature of the workforce, it is imperative that you keep track of your own retirement!
When you have assets in multiple locations, it is difficult to have a proper asset allocation. This is important because your long-term performance and the level of risk that you are taking in your portfolio are impacted by having the proper amount in large companies, small companies, international companies, bonds, and cash. While this can be controlled with a good spreadsheet and diligent trading, most investors are not doing so. The long-term impact is not good for their returns, their risk tolerance, or their futures.
Long-term asset rebalancing is also difficult when you have too many accounts. This means that investing is not a set-it-and-forget-it exercise. You not only need to buy the right amount of large companies, small companies, etc., but you also need to maintain nearly the same percentages. Retirement accounts should be rebalanced about every twelve months. Non-retirement accounts should be rebalanced every eighteen months. If we have a major market correction like we did this year, you should also consider a rebalance at that time. The more accounts that you have, the tougher the logistics.
In conclusion, when it comes to the number of investment accounts you have, follow the KISS method – Keep It Simple Smarty.
*Asset allocation won’t guarantee a profit or ensure against a loss, but may help reduce risk and volatility in your portfolio. Diversification cannot eliminate the risk of investment.