Why You Should Consolidate Investment Accounts
If you’re like me and have made several career moves already, you probably have money sitting in a few different places. This can lead to confusion, not only in terms of tracking your money, but also evaluating the performance of your investments. Aside from the ease in having all of your money in one place (receiving one statement, the ease that comes with filing taxes, etc) there are several disadvantages to having several accounts.
Disadvantages of Several Accounts
Nothing can put a damper of your return on investment like high fees. Most brokerage accounts charge a custodial fee which is the cost of “maintaining” your IRA. In the long-run these can add up if you’re paying them on multiple accounts. Bite the bullet and ask about the termination fee that often comes with transferring funds and reap the reward of fewer fees down the road.
It is true that many employer-sponsored retirement plans are high-cost options for investors. Insurance-based plans, annuity plans and many small company option are sure signs that yoompare your fees with those of a consolidated IRA.
When you take a road trip, do you drive one car or four? Of course, having one dashboard allows you to easily monitor investments and quickly make moves. For many, this single reason is the best of all. Being able to quickly review your results and make the tough calls is an important part of “winning” the investment game. Also, correctly diversifying investments spread over many different accounts can also be a real pain.
There are some benefits that come with owning multiple IRA’s that pertain to assigning beneficiaries and withdrawing. Additionally, there is some legal protection that comes with owning multiple accounts in the event that you find yourself in court. Each type of plan is protected differently in various types of legal situations, so there may be some advantages in not having all of your eggs in one basket if you find yourself face to face with the law.
Of course everyone’s situation is unique. If you’re young like me these factors are (hopefully) negligible as I have a long life ahead of me and will probably switch jobs and accumulate a few more accounts before it’s time to withdrawal. There are obviously a lot of “what-ifs” at play here.
Why I Wouldn’t Roll Money to My Current 401k
I know advisors ALL say not to roll money to your current 401k and it’s easy to see why you’d distrust their opinion. After all, many have only internalized this argument because they’re playing the asset-gathering game. In this case I agree with their assessment.
You don’t want to roll your money to your new 401k because you’re stuck there. Even if your current 401k has some good options and low fees, you’re a trapped person at the whim of administrators in your company (in less you’re the one calling the shots….in which case I’d most definitely consolidate to your current 401k!).
What if your company suddenly goes to high fee accounts? What if they get cheap and reduce the number of options available? What if they change the terms of the 401k plan? I’m not a fan of the inflexibility of “what might happen” in the future to my 401k. That’s why I’d keep dollars (besides those I’m saving) out of my current 401k plan.
As is the case with most things related to finance, what may be best for one particular investor is not best for all. Before making any decisions as to what to do with your savings, it is always best to take a overall look at your current situation as well as your future goals. If you are not comfortable making financial decisions on your own, it is definitely worth considering seeking the advice of a skilled professional adviser.