Don’t put all your eggs in one basket.
It is one of those sayings most of us have heard since childhood, and when it comes to investing, it sounds like common sense. Diversification is, after all, a fundamental principle of sound investing. Somewhere along the way, however, many investors began applying that same principle not just to their investments, but also to their financial advisors and custodians.
That distinction matters.
Diversifying your investments can reduce risk. Diversifying your financial relationships may simply create complexity.
It is not unusual to meet a prospective client who has an IRA with one firm, an old 401(k) somewhere else, a brokerage account with another advisor, a few CDs at the bank and perhaps an annuity or two purchased years ago from someone they barely remember. Often this arrangement developed gradually rather than intentionally. Yet when consolidation is suggested, the response is frequently some version of, “I don’t want to keep all my eggs in one basket.”
The concern is understandable. People may worry that one advisor will have too much control, that a financial institution could fail, or that spreading money among several firms somehow provides greater protection. Keeping accounts with different advisors, however, is not the same thing as diversifying the assets inside those accounts. A well-constructed portfolio can hold stocks, bonds, cash, real estate investments, and other asset classes while still being overseen through one coordinated financial relationship. In fact, having one advisor see the entire picture can make true diversification easier because investment decisions are being made with knowledge of everything you own rather than just one piece of it. Fragmentation can create other problems as well. Multiple advisors may unknowingly duplicate investments, take conflicting approaches to risk, or make tax decisions without understanding what is happening elsewhere. One advisor may believe your portfolio is conservative while another is investing aggressively. Each may be doing a perfectly reasonable job with the assets they can see, while no one is managing the whole.
There is also a practical benefit that becomes especially important later in life.
If something happens to you, would your spouse, children, executor, or trustee know where everything is?
A consolidated financial life can be an enormous gift to the people who eventually have to step into your shoes. Instead of searching through years of statements, old emails, forgotten accounts, and unfamiliar institutions, your family knows who to call and where the assets are held. Beneficiary designations can be reviewed together, required distributions can be coordinated, and estate settlement becomes considerably less complicated.
None of this means investors need to blindly hand everything to one person or institution. Trust is something an advisor earns over time. Working with a reputable custodian, reviewing statements regularly, and understanding how your money is invested and protected all remain important parts of a sound financial relationship.
Once you have found an advisor you genuinely trust, however, keeping that advisor from seeing or managing half of your financial life may actually work against you.
Perhaps the better rule is this:
Diversify your investments. Simplify your financial life.