Diversification Among Investment Companies

In a recent discussion of diversification of investments, a friend commented that it is wise to be diversified among brokers and other investment companies, so that if one of them goes under, only a fraction of your investments will be affected.

In mulling it over I discerned that I am not as well set up as I thought. Both my stock account and my IRA account are at TD Ameritrade, unnecessarily. It would be a simple matter to transfer the IRA elsewhere as it is 100% cash at the moment. The size of this IRA account is small, only 3% of my investment portfolio, but it still deserves its fair share of attention.
After studying the possibilities for a couple of weeks I have decided to transfer the IRA to Scottrade. Commissions for online stock trades are $7 as opposed to $10 at TD Ameritrade. In addition, they have a physical office nearby, but TD Ameritrade no longer has an office in this state. Scottrade’s website is much better than TD Ameritrade’s . So the switch will result in at least three improvements for the IRA account. I have a friend who has dealt with Scottrade for several years with complete satisfaction.

There are good firms like Interactive Brokers with lower commissions, but IB has complicated rules that favor very active traders. There is also zecco.com which claims it will offer commission-free trading starting tomorrow. But I don’t need the money badly enough to participate in their experiment. Scottrade is a good middle-of-the-road solution.

I will take advantage of this switch to change my beneficiary designation. At the moment my wife is the beneficiary, but in view of estate planning it makes more sense to designate my children as beneficiaries. Current tax law provides that an IRA bypasses probate and goes directly to the beneficiaries. If they promptly roll the assets into their own IRAs, the transfer can be accomplished completely free of taxation. It will be important to put a copy of the new beneficiary designation form in the safe deposit box. Likewise, it will be important to start putting as much money as I can into this IRA as “spousal contributions” before my wife retires, since there will be no “earned income” to contribute afterward; and to explore converting the account to a Roth IRA after my wife retires, and we are in a lower tax bracket, so that I will not be required to take distributions at age 70-1/2.
Once this new Scottrade account is established I will use it to buy shares of stocks and ETFs whose distributions may involve tax inefficiences, starting more or less immediately with DBV and GDX, to be accumulated by systematic dollar cost averaging.

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