Diversification Through Multiplication

May 2004
Journal of Financial Planning;May2004, Vol. 17 Issue 5, p25
Academic Journal
The article deals with the results of the American Express Personal Economy Survey about household finance in the U.S. Nearly half of all U.S. households own two or more of the same type of retirement account, and one reason may be because they think owning multiple accounts results in diversification. While some of this duplication is undoubtedly due to two working spouses with separate retirement accounts, the survey found that one-third had a 401(k) account with a previous employer as well as one with their current employer, over one-third had three or more accounts, and one in six had five or more accounts. A large majority said they liked having multiple accounts, which American Express attributes to the mistaken belief that multiple accounts are a sign of diversification. But multiple accounts are more costly to maintain and make it more difficult to track asset allocation and manage distributions. Multiple jobs and careers account in part for the accumulation of multiple retirement accounts, despite tax laws allowing for easier consolidation of accounts. But the survey also found that 70 percent of households with employer-sponsored plans mistakenly believe they do not pay management fees for those accounts, and more than one in ten could not identify the type of retirement accounts they own.


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