Diversify or Consolidate?: What You Need to Know

wealth management services in Palm Beach Gardens helps minimize risk

Throughout the investment industry and financial media sources, we constantly hear the message that our money should be diversified. By spreading assets throughout several different vehicles, we can take advantage of various market opportunities while helping protect them from some investment risks. At Legacy Financial Partners, our wealth management services in Palm Beach Gardens are designed to minimize your risks through diversification and consolidation strategies.

wealth management services in Palm Beach Gardens help minimize risk through diversification of investments

Understanding Diversification

What is it?

At its core, diversification of investments, income, or any other financial element is a risk management strategy. In the realm of wealth management in West Palm Beach, diversification refers to using different asset types and investments to spread money across in enough realms that it limits your exposure to negative results. This strategy, on average, also tends to yield better long-term results.

But how much diversification is too much? And what exactly should it cover?

For example, should you spread your money across brokerages and custodians or maintain a small number of accounts with one or two financial institutions? As young investors, we are often tempted to try out different investment opportunities in response to broker solicitations, direct mail advertisements, money managers we hear on television or radio, as well as several other mediums that seem promising.

An Alternative in Consolidation

But as we near retirement, it’s usually a good idea to begin consolidating accounts. This is because it can often be easier to manage fewer accounts as we grow older.

It also can help our loved ones or a hired financial professional step in to find and assist in wealth management in Palm Beach Gardens on our behalf. If you have reached this stage and would like to get your finances organized and consolidated, we can help you decide the best options for your situation. Don’t hesitate to call.

Consolidating with a Broker or a Bank

Should you consolidate down to just one brokerage and/or one bank? That may depend on the total value of your assets. Note that the Securities Industry Protection Corporation (SIPC) insures up to $500,000 in each account held at each institution.

In other words, if you hold a taxable account and a tax-deferred account at the same brokerage firm, each is insured for up to half a million dollars. Also, note that your money is kept separate from the assets of the brokerage firm itself. Therefore, if the company gets into trouble, it can’t tap its customers’ money to bail itself out.[1]

Is Consolidating with a Brokerage Firm a Good Idea?

There are some good reasons to consolidate with one brokerage firm. First of all, it’s simply easier to monitor performance. Second, you also may enjoy additional perks if your total account size exceeds a specific threshold. For example, as a “premium investor,” you may be eligible for free advisor consultations, free notary services, etc.

However, just because you consolidate with one broker doesn’t mean you need to put all of your money in one account. In fact, it can be a good idea to vary products for tax diversification. A combination of taxable and tax-free accounts — such as traditional and Roth IRAs (which do not require minimum distributions) – can reduce your tax liability during retirement.

Potential Drawbacks

Be aware of portfolio overlap as you diversify your investments. Your investments — particularly mutual funds and ETFs — may share many of the same securities. When you consolidate, it can be an excellent time to cross-reference your assets to identify security duplication and concentration.

One rule of thumb is to consider holding no more than 10% of your total investment in any particular industry or company. Otherwise, a performance decline may dramatically affect your income during retirement.[2]

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Setting a Timeline

Another idea is to consolidate into a “Target Date” fund which is designed to adjust its allocation mix as you approach the target date (often your retirement date). In doing so, you benefit from a single diversified portfolio managed by financial professionals who periodically rebalance the investment mix to stay on target with its timeline and performance goals.[3]

Be aware that as working spouses begin to consolidate their individual accounts, they may have many of the same underlying investments. Review all accounts to determine an appropriate asset allocation and retirement timeline for each spouse as well as the household.

Consolidation and 401(k) Plans

If you are considering consolidating multiple 401(k) plans, your choices may be limited by what your past and current plan sponsors allow. Sometimes it’s easier to roll over those assets to a traditional IRA, especially if you tend to change jobs relatively often. The IRA becomes a repository to consolidate old 401(k) assets and maintain a strategic asset allocation without being overly diversified or having too many overlapping securities. Consider your 401(k) options:[4]

  • Leave the assets in the current 401(k) if allowed by your former employer’s plan.
  • When changing jobs, roll your old 401(k) account assets into your new employer’s plan — if allowed by the new program. This may be preferable if the new plan permits loans, but be sure to compare new and old plan fees and investment options to ensure you get what you want.
  • Roll over your old 401(k) into an individual retirement account (IRA) — do this with each career/company move to maintain one consolidated reservoir. Be aware that an IRA does not permit loans, and there may be negative tax consequences if you have significantly appreciated employer stock.
  • Cash out your old 401(k) only if you need the money. Not only are those funds considered taxable income and subject to an immediate tax withholding, but you also may be subject to a 10% tax penalty if you cash out too young. Moreover, you could miss out on future tax-deferred gains.

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Want to Learn More About Wealth Management in Palm Beach Gardens?

Legacy Financial Partners offers the expert advice and financial guidance you need to protect your wealth into retirement and beyond. If you want to create an effective investment strategy, give us a call today to meet with a member of our team. Let’s get started!

Content prepared by Kara Stefan Communications. Edited and Optimized by Digital Resource. 

1 Teri GeskeInvestorjunkieFeb. 23, 2021. “Can You Have Multiple Brokerage Accounts?” https://investorjunkie.com/stock-brokers/can-you-have-more-than-one-brokerage-account/ Accessed April 2, 2021. 

2 T. Rowe Price. Spring 2021. “Focus on Diversification.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

3 T. Rowe Price. Spring 2021. “A One-Stop Approach to Retirement Investing.” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

4 T. Rowe Price. Spring 2021. “What Should You Do With an Old 401(k)?” https://www.troweprice.com/content/dam/iinvestor/planning-and-research/Insights/investor-magazine-spring.pdf. Accessed April 2, 2021.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.


Diversification does not ensure a profit or guarantee against loss; it is a method used to manage risk.

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