Manage Multiple Accounts Together (Including Your 401k)

Investing for the future can sometimes seem like an administrative nightmare.

You have checking and savings accounts, a regular brokerage account, a 401(k) plan, an IRA …

… and then you get married, only to find that your spouse has a whole handful of his or her own accounts. And it can be easier-said-than-done to consolidate everything on one common platform.

But whether you have two accounts or twenty accounts, it’s critical to manage all your accounts together. Not only will this help you feel more in control, but it can also help you increase earnings, reduce fees, and save on taxes.

There are three key benefits to managing your investing accounts as a whole. In this article, we will explore each of these, then talk about practical ways to implement an integrated account management approach.

Coordinated Asset Allocation

The three benefits to managing investment accounts together are:

1) Maximize growth with minimal risk, in a way that’s tailored to your goals.
2) Managing fees and expenses.
3) Optimizing around tax considerations.

Let’s start with the first.

Your asset allocation strategy – the amount you allocate to various asset classes with different risk and return properties – is a highly-customized reflection of your specific investment goals and the amount of risk you are willing to take on in pursuit of those goals.

Generally speaking, the longer you have until you will need to draw income from the account, the more you want to orient the allocation in favor of growth.

You also want to have a suitably diverse range of asset classes to help cushion your exposure to negative market environments. For example, you’ll probably want a mix of U.S. and non-U.S. equities, large caps and small caps, and a mix of shorter-term and longer-term bonds.

If you’re not managing all your accounts together, the chances are that your allocation is going to be out of whack somewhere. You’ll make a change in one place and forget to make it in another. Or something will change – perhaps you’ll get married – and you fail to tweak the allocation accordingly.

What’s the problem with out-of-whack allocation? You might be far more exposed to risk than you expected. Conversely, you might be investing in a much more conservative manner than you intended. Either way, your risk/reward profile is out-of-line with your goals.

Coordinated asset allocation doesn’t mean that each account has to be allocated in exactly the same proportions. There are serious tax implications (as we discuss further below.)

But it does mean that you should think about all your accounts together, and then making the necessary adjustments.

Managing Fees

Having a system for managing your accounts together can also help you get a handle on fees and expenses.

A shockingly large percentage of American investors have little or no idea how much they are paying every month to brokers, fund managers and other third party service providers. Fees matter: every dollar that you pay in fees is a dollar less that is compounding over time for your future.

If you have multiple accounts around a single goal (e.g. retirement, or general wealth building) you can compare the asset exposures you have in each account, and get rid of any funds that do not stand up to an acceptable standard of costs versus benefits. An online portfolio management service like Jemstep can help you identify high quality assets with competitive fee structures.

Of course there may be constraints. Some 401(k) plans provide limited access to attractive low-cost funds, for example. But a single bird’s eye view of all your funds can help you optimize around cost.

Lower Your Tax Bill

The third important reason to manage your accounts together is taxes.

Some of your accounts are going to have a higher proportion of income-oriented assets like bonds and high-dividend stocks. Wherever possible, try to “relocate” these tax-sensitive assets to qualified accounts (like 401(k), IRA or 529 plans) to reduce your tax bill.

Say, for example, that you have something like a 60/40 split between stocks and bonds, and maybe a further split in your equity allocation of 50% high dividend / 50% high growth). Rather than maintaining a strict 60/40 allocation across each account, your 401(k) and similar accounts should contain as much of the high income asset exposure as possible, while putting other assets like emerging market or small-cap stocks into your taxable accounts.

Putting It Into Practice

So how do you put an all-accounts management program into practice?

You’ve probably seen ads by large financial companies touting the benefits of consolidating all your accounts in one place (namely, theirs). There can be benefits to that, but it can also be difficult to implement. You may have no choice as to where to house a sponsored account like a 401(k). You might trigger short-term capital gains taxes if you sell funds that you’ve held for less than a year. You and your spouse or partner may have different ideas about which firm offers the most attractive platform. And for tax and other regulatory reasons, you and your spouses’ accounts may have to be treated as separate accounts even if they are on a common platform.

Fortunately, there are alternatives available today that were not options for investors five or ten years ago. Online portfolio management services like Jemstep offer a way to integrate and manage all your accounts in a single place.

You don’t need to go through the hassle of moving your money to a different account. Platforms like Jemstep allow you to view all of your accounts in one place, regardless of the institution at which they’re held. In the same way that Mint.com allows you to track all your bank accounts and credit cards, Jemstep allows you to track all of your investments.

Jemstep provides expert advice for designing an appropriate asset allocation, choosing the right assets for each slice of the allocation pie while taking cost considerations into account, and minimizing tax consequences wherever possible. This advice is customized to your specific investment goals and risk considerations, with an intuitive and user-friendly process to guide you through each step of the process.

Final Thoughts

Managing your accounts holistically is important. Use online tools like Jemstep to achieve this. You don’t necessarily need to consolidate all of your accounts. You can consider your accounts as a whole, and then make specific changes within each one.