Deciding where to put your money can be complicated. If you're trying to balance where your funds should be for the best financial benefit, you may be wondering if it's possible to have too much money in your brokerage account.
The reality is, unlike other kinds of financial accounts, you can't really go wrong with a bigger brokerage account balance. However, while you want to put as much money into a brokerage account so you can invest in the market, you don't want to end up with more risk than you should take on.
So while it's not really a problem if you have a big brokerage account balance, it can be a problem to have money invested with a broker when it should be accomplishing some other task.
Read more: unlock best-in-class perks with one of these brokerage accounts
Here's why you can't have too much money in your brokerage account
Putting your money into a brokerage account allows you to invest in stocks. You can buy shares of individual companies if you want. Or you can opt to purchase exchange-traded funds (ETFs), which are traded like stocks but track the performance of a broader financial index (which can make them easier to invest in).
The stock market has historically been the best way for average people to invest because you can usually earn a pretty good return over time with minimal risk if you make smart investments, such as buying shares of an S&P 500 ETF that tracks the performance of around 500 large U.S. companies.
Since you can expect a good return over time if you make informed choices, you can't really have too much money in your brokerage account. After all, you want as much money as possible earning the highest possible returns. This is different from, say, keeping your money in a high-yield savings account. If you put too much in savings, you end up capping your potential returns in a way that can hurt your wealth-building efforts because you can only earn so much on that cash, depending on your account's APY.
You can have too much in a savings account
Say, for example, you have $50,000 in a brokerage account earning a 10% average annual return over 30 years. (This is in line with the stock market's average annual return over the last 50 years.) That $50,000 would turn into $872,470 over 30 years. If you instead kept it in a high-yield savings account and earned just a 4% average annual return over that same time period, you'd end up with only $162,169.88. It's also important to note that savings account APYs fluctuate, and it's unlikely that you'll see a 4% return over such a long period.
Since you don't want to lose the chance to earn the returns needed to build wealth, you only want to put money in savings that you think you'll need soon and can't take the risk of investing in stocks. So your savings account balance could definitely be too big. A bigger brokerage account balance, though, would just end up allowing you to invest more over time, and you could end up a lot richer as a result.
Some money doesn't belong in an investment account
While investing as much as possible in a brokerage account isn't a bad thing, you could run into problems if you're putting money into one when it is needed for something else.
Your emergency fund and any money you may need in the next three to five years should be in savings rather than in a brokerage account because you need to keep that money safe. You don't have time to wait out a market downturn and recovery if you'll need the cash to make a down payment on a home or fund another large purchase.
If you have money in a brokerage account that you can't risk losing, you should move it to a savings account where it will be safe and accessible if you need it. But if you already have a fully-funded emergency fund, are saving for short-term and mid-range goals, and don't have a lot of high-interest debt you need to pay back, then you're good to go and can put as much of your spare cash into a brokerage account as possible without worrying about a large balance.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.
FAQs
If you're trying to balance where your funds should be for the best financial benefit, you may be wondering if it's possible to have too much money in your brokerage account. The reality is, unlike other kinds of financial accounts, you can't really go wrong with a bigger brokerage account balance.
How much money can you safely keep in a brokerage account? ›
Holding cash here is appropriate if you plan to spend the money within a few days or would like to quickly place a trade. Assets in your brokerage account are protected up to $500,000 per investor, including a maximum of $250,000 in cash by SIPC in the event a SIPC-member brokerage fails.
Is it safe to keep more than $500,000 in a brokerage account? ›
They must also have a certain amount of liquidity on hand, thus allowing them to cover funds in these cases. What this means is that even if you have more than $500,000 in one brokerage account, chances are high that you won't lose any of your money even if the broker is forced into liquidation.
Is it safe to have all your money in one brokerage? ›
Spreading your assets across different brokerage accounts can help protect you against potential fraud or unauthorized access, Roller says. If one broker has a breach, then you can still trade with another investment firm. The safety of your funds is also a concern.
Is keeping money in a brokerage account safe? ›
Cash and securities in a brokerage account are insured by the Securities Investor Protection Corporation (SIPC). The insurance provided by SIPC covers only the custodial function of a brokerage: It replaces or refunds a customer's cash and assets if a brokerage firm goes bankrupt.
How much money is too much for a brokerage account? ›
Since you can expect a good return over time if you make informed choices, you can't really have too much money in your brokerage account. After all, you want as much money as possible earning the highest possible returns. This is different from, say, keeping your money in a high-yield savings account.
Do millionaires use brokerage accounts? ›
Millionaires use brokerage accounts for low-cost index funds. “Buying and holding index funds in a brokerage account, it's possible to keep and grow wealth over the long term,” according to Business Insider.
Why should no one use brokerage accounts? ›
If the value of your investments drops too far, you might struggle to repay the money you owe the brokerage. Should your account be sent to collections, it could damage your credit score. You can avoid this risk by opening a cash account, which doesn't involve borrowing money.
Where do billionaires keep their money? ›
Common types of securities include bonds, stocks and funds (mutual and exchange-traded). Funds and stocks are the bread-and-butter of investment portfolios. Billionaires use these investments to ensure their money grows steadily.
How risky is a brokerage account? ›
Brokerage accounts are insured by SIPC up to $500,000 but the insurance doesn't cover the payback from your investments. It only covers missing assets if the broker goes down. If customer assets aren't missing, the SIPC insurance isn't needed.
While bank balances are insured by the Federal Deposit Insurance Corporation (FDIC), investments held in a brokerage account are covered by the Securities Investor Protection Corporation (SIPC). It protects investors in the unlikely event that their brokerage firm fails.
Can money sit in a brokerage account? ›
Options for Managing Your Cash
Typical options for your uninvested cash include leaving it in your brokerage account, “sweeping” (automatically transferring) it to a bank deposit account as part of a bank sweep program, or sweeping it to a money market mutual fund as part of a money market sweep program.
Should I put all my money into a brokerage account? ›
If you've got a large chunk of cash, you might secure better returns outside of a brokerage account. You could lose money. If your money is swept into a money market fund, that cash won't be insured by the FDIC or SIPC. It's possible to lose money.
How much cash should you keep in a brokerage account? ›
“When we build a financial plan for clients, we tend to be a little bit more conservative, because we believe managing risk is important,” says Verhaalen. Verhaalen often recommends clients maintain a cash reserve that's, at a minimum, the equivalent of six months of income.
Do you pay taxes if money stays in brokerage account? ›
Brokerage accounts are taxable accounts
But brokerage accounts are also called taxable accounts, because investment income within a brokerage account is subject to capital gains taxes. Retirement accounts (such as IRAs) have a different set of tax and withdrawal rules.
Is Charles Schwab still safe? ›
All of the deposits at Schwab Bank are protected by FDIC insurance. That includes all of our investor checking accounts and savings accounts and CDs.
Is my money protected in a brokerage account? ›
The Securities Investor Protection Corporation (SIPC) is a nonprofit membership corporation that protects customers of SIPC-member broker-dealers if those firms were to fail financially. SIPC protects brokerage accounts of each customer up to $500,000, including up to $250,000 for cash.
Can I leave money in a brokerage account? ›
Options for Managing Your Cash
Bank sweep programs do provide FDIC insurance up to the $250,000 limit per customer. Uninvested cash left in your brokerage account is known as a “free credit balance.” Firms may or may not pay you interest on your free credit balance.
