Using Multiple Investing Apps: Smart Strategy Or Overkill?

There are several benefits to using multiple investing apps. Firstly, it can help you keep track of various investment goals, such as saving for retirement, building up a down payment, or planning for a big expense. Multiple accounts can also help you achieve tax diversification and benefit from special offerings or features that may be specific to certain platforms. For example, some investment apps offer roundup features, which let you invest spare change in the stock market, while others provide person-to-person financial advice or robo-advisors with automated rebalancing.

However, there are also some drawbacks to using multiple investing apps. It can be more complex to manage, and it may be challenging to track your overall performance and asset allocation across multiple platforms. Therefore, it's important to have a plan to stay organized if you choose to use multiple investing apps.

Tracking multiple investment goals

It is possible to have multiple brokerage accounts and it may even be beneficial, provided you know how to manage them. Here are some tips on how to track multiple investment goals:

• Identify your investment goals: Common investment goals include saving for retirement, building up a down payment, planning for a big trip, saving for a child's education, or supplementing retirement savings with passive investing.
• Open the right type of accounts: Depending on your goals, you may want to open an IRA, use a low-cost investing app for day trading, and/or open a taxable brokerage account for more flexible savings.
• Automate your contributions: Set up automatic contributions on a regular schedule into a retirement account comprising diversified index funds. This way, you don't have to worry about contributing to this account manually, and your savings will grow over time.
• Use "play money" for stock picking: Use the money left over each month after expenses and reserves as "play money" to test out your stock-picking skills in a trading app. However, only keep a small portion of your investable assets in these types of risky assets.
• Consider tax diversification: By using a combination of taxable and tax-advantaged accounts such as an IRA, HSA, or 401(k), you can reduce the tax burden on your taxable account.
• Take advantage of special offerings: Some investment platforms offer specific benefits or features such as roundup features, person-to-person financial advice, or robo-advisors. You can use these passive strategies for the bulk of your investing while still having an active trading account on the side.
• Stay organized: As the number of accounts increases, it can become more challenging to track overall performance and asset allocation. Consider using apps such as Empower (formerly Personal Capital) or software provided by large brokerages and financial advisors to consolidate and track your performance across all accounts.

Tax diversification

• Fully taxable investment accounts: These are funded with after-tax money, and you pay taxes on yearly dividends, interest earnings, and capital gains. While these accounts offer flexibility in terms of withdrawals, they don't provide immediate tax benefits.
• Tax-advantaged investment accounts: Retirement accounts like 401(k)s, 403(b)s, and traditional IRAs fall under this category. They are funded with pre-tax or tax-deductible money and have defined contribution limits. Earnings are tax-deferred, but withdrawals and required minimum distributions (RMDs) are taxed as ordinary income.
• Tax-free investment accounts: Examples include Roth IRAs, Roth 401(k)s, municipal bonds, 529 savings plans, and health savings accounts (HSAs). Most are funded with after-tax money, and earnings are generally tax-deferred. Withdrawals from Roth accounts are typically tax-free after age 59½. HSA and 529 withdrawals are tax-free only when used for qualified medical or education expenses, respectively.
• Create different tax 'buckets' for retirement: Utilize both traditional (tax-advantaged) and Roth (tax-free) accounts to reduce your overall tax burden. When you reach age 59½, consider withdrawing from your tax-advantaged accounts just enough to stay in a lower tax bracket, and then tap into your tax-free Roth accounts.
• Anticipate your tax bracket in the future: If you're early in your career and expect your income to increase, prioritize Roth accounts. If you're in your peak earning years, shift towards traditional accounts with pre-tax contributions.
• Ensure liquidity for short-term needs: Fully taxable investments, such as interest-bearing accounts and brokerage accounts, offer the flexibility to withdraw funds at any time without penalties.

Special offerings or features

Investment apps are a great way to get started with investing, especially for beginners. They are designed to be user-friendly and easily accessible, allowing users to invest and manage their money across various financial markets, including stocks, bonds, mutual funds, ETFs, and cryptocurrencies.

• Educational Resources and Research Tools: Many investment apps provide a wealth of educational resources, including articles, tutorials, and financial literacy content. These resources help users improve their understanding of personal finance and investing, making informed decisions about their investments. Some apps, like ETRADE from Morgan Stanley, also offer live-streaming news and market commentary, keeping users informed about market trends.
• Fractional Shares and Micro-Investing: Some investment apps, like Acorns, allow users to invest small amounts by rounding up their purchases to the nearest dollar and investing the difference. This feature makes investing more accessible to those with limited funds. Additionally, apps like Fidelity and TD Ameritrade's thinkorswim offer fractional share investing, enabling users to buy less than one share of a particular security.
• Robo-Advisor Services: Investment apps often provide robo-advisor services, using algorithms to create and manage investment portfolios based on the user's risk tolerance and goals. These services are ideal for beginners who want a more hands-off approach to investing.
• Diverse Investment Options: While the investment options vary among apps, some offer a wide range of choices beyond stocks and bonds, including ETFs, mutual funds, commodities, and cryptocurrencies. This diversity allows users to build a more comprehensive investment portfolio.
• Account Types: Investment apps may offer various account types, such as taxable investment accounts, retirement accounts (IRAs), and 529 plans for college savings. This variety enables users to invest for different financial goals, including retirement and children's education.
• Low Fees: Many investment apps have low or no account opening minimums and competitive trading fees, making them cost-effective options for users. Some apps, like Fidelity, charge no account fees and do not sell order flow, resulting in better prices for users when buying or selling investments.
• User-Friendly Interface: Investment apps prioritize usability, offering clean graphics and easy-to-navigate platforms. This user-friendly approach makes it convenient for users to monitor their portfolio performance, execute trades, and access various account types and investment options.
• Security and Regulation: Reputable investment apps are regulated by financial authorities, such as the Securities & Exchange Commission (SEC) in the US, providing protection to investors. Additionally, features like two-factor authentication, password hashing, and encryption of personal information ensure the security of user data.

Drawbacks of multiple accounts

While there are benefits to having multiple brokerage accounts, there are also some drawbacks to consider.

More accounts mean more work

Having multiple brokerage accounts means more work for the investor. It can be challenging to monitor and manage multiple accounts, especially when it comes to rebalancing and risk reduction. The more accounts you have, the more communication, such as statements and emails, you will receive, making it harder to keep track of your overall performance and asset allocation.

Lack of effective communication

If you work with multiple brokerages, it is crucial to ensure open and free-flowing communication between all parties involved. Lack of communication can lead to complexity and confusion, costing you time, resources, and continuity in your investment plans.

Higher fees and expenses

Partnering with multiple brokerages may result in higher fees and expenses, including advisory fees, expense ratios, inactivity penalties, and other associated costs. These additional fees can impact your tax reporting and cause dilution of investment focus, potentially leading to a lack of cohesive investment planning and diversification.

Lack of diversification

Having multiple brokerage accounts does not necessarily mean you have a more diverse portfolio. If the investments across your accounts mirror one another, you may be reducing the overall performance of your investments.

Missing out on tax savings

Distributing your funds across multiple brokerage accounts may cause you to miss out on certain tax-saving strategies, such as tax-loss harvesting, which is typically available only when your investments reach a certain threshold.

Challenges in tracking performance

With multiple brokerage accounts, it can be challenging to track your overall investment performance and asset allocation. You may need to rely on additional software or tools to consolidate and monitor your investments holistically.

In conclusion, while multiple brokerage accounts can offer certain benefits, it is essential to carefully consider the potential drawbacks and complexities that may arise. Effective communication, higher fees, lack of diversification, missed tax savings opportunities, and challenges in tracking performance are some of the key drawbacks to using multiple investing apps or brokerage accounts.

Brokerage account bonuses

• Charles Schwab: Offers a referral bonus of up to $1,000 for new clients who use a referral code from a current customer and open an eligible account.
• J.P. Morgan Self-Directed Investing: Offers a cash bonus of up to $700 for opening a brokerage or retirement account and funding it with $5,000 or more.
• Tastytrade: Provides a bonus of up to $5,000 for new clients who open a taxable account and deposit at least $2,000.
• SoFi Invest: Offers a bonus of up to $10,000 for customers who transfer investments of at least $5,000 from another brokerage.
• Merrill Edge: Gives a bonus of up to $600 for opening a cash management or IRA account and making a qualifying deposit of at least $20,000 within 45 days.
• TradeStation: Provides a bonus of up to $3,500 for opening a non-institutional account and depositing new assets of at least $5,000 within 45 days.
• E-Trade: Offers a bonus of up to $6,000 for opening a retirement or brokerage account and funding it with $50 or more within 60 days.

These bonuses can be a great incentive to open a brokerage account, but it's important to consider other factors as well, such as customer service, asset availability, and account types.

Frequently asked questions