Downside of having multiple brokerage accounts?
I have around 4-5 long term objectives, that I would like to invest towards separately. I was planning on opening a separate brokerage account for each objective. The benefit would be that each objective is well compartmentalized and I have a good control over the investment strategy for individual objectives.
I was wondering what are the downsides of having 4-5 different brokerage accounts? For ex, will it badly affect my credit score?
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It will not have bad effect on credit score. If each account has different minimum funding requirement then you will have to satisfy the requirements on all of them.
If one or more of these accounts are margin account(s), and you plan to use that to either borrow money and/or trade derivatives like option or future, then I think at least you will need to maintain 00 on each of them. In addition, you cannot use securities in account A as collateral/margin/buying power/etc. in account B (e.g. You have 100 shares of XYZ in account A, and sell a call of XYZ in account B, then it will be viewed as a naked call by the broker of account B).
It could be a lot more time consuming to manage, and harder to keep track of your entire portfolio (net worth). You will have at least one tax form from each broker every year.
You could easily compartmentalize each investment objective in a spreadsheet while commingling all positions in a single account. That avoids 4-5 EOY tax forms.
With 4-5 accounts, dividends received would be spread out across them and it would be harder to accrue enough cash to buy round lots, unless your broker offers dividend reinvestment for every position.
I would suggest having funds at two different brokers in the event that one is inaccessible so that you can trade at the other should you need to defend your positions. This would apply to a trader rather than a buy & hold investor.
And as Ben mentioned, with multiple accounts, your broker(s) will not be tracking wash sales and could not only lead to a nasty tax surprise but doing it yourself and doing it correctly can be a royal PITA if you have multiple buys and sells after incurring a violation.
I don't see any great advantage to having 4-5 brokerage accounts.
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