Looking for something on my desk and actually finding it can be two very different exercises in my life.
Instead, last week while looking for something I needed, I came across a small pile of papers that I had put off for a couple of years. They were forms that a brokerage firm had sent me when I inquired about how I had consolidated some of my holdings and transferred some shares I had inherited to my primary brokerage account (where I held shares in the same companies).
Transfers like this were supposed to be easy, but that thick document with little sticky notes pointing to places that required details and signatures proved it wasn’t. Since I don’t like the trouble, I put it off for years. I also postponed the consolidation of two Roth IRA accounts and the extension of a retirement savings account from an old part-time job.
What I said was a reminder that I hadn’t oversimplified anything, but I avoided the hassle until I found this paperwork again (instead of what I was looking for) and decided it was time. Additionally, I was pretty sure – and ultimately I was right – that the evolution of the financial services world is making portfolio consolidation easier than ever.
It turned out to be so easy that it spurred me on to clean up my financial accounts; it could also give you a game plan to make your financial life easier.
Typically, simplifying finances boils down to investing to clean up a portfolio by eliminating latecomers, non-performers, and disappointments.
It’s important, but it should be an ongoing process. Clearing portfolio clutter is different.
Tidying up a portfolio is in many ways like emptying an attic or cluttered closet. You mostly know what’s there and why, there’s a lot you want to keep, and you don’t really notice – or have to deal with – the mess when the door is closed and you can’t see it.
However, cleaning up a portfolio can save money, improve investment returns, simplify tax collection and reporting, and make life easier for family members who may one day need to help you manage and / or inherit your money.
Start small – look at the little things that are piling up in your portfolios – and branch out.
Since you’re putting investment performance aside for another day, instead look at your smallest holdings and ask why they’re not an important part of your life. These small dollar items are easily forgotten or misplaced over time, which goes a long way in explaining how roughly $ 50 billion in unclaimed investment property is owned by state finance departments across the country.
It could be a few dozen stocks of a stock that was split off from one of your core holdings, or the mutual fund, direct buy, or other investment you bought years ago because you thought you were just adding to your holdings to get the deposits stopping at performance was listless.
It can also be securities that you have largely lost interest in or that are trivial in the size of your holdings today, that you bought years ago with everything you had left, but that years later have an insignificant portion of your holdings turn off. Or, as in my last case, it was the same security held in two accounts.
These are easy choices.
Consolidating holdings is easy these days and usually requires a wire transfer application filed online with the institution receiving the money. That company should be able to pick and move the securities you specify in a matter of days with no paperwork – or take over the entire account.
If your moves are taxable, keep copies of all cost baseline information. These details should be passed through automatically so your consolidated inventory reflects the correct total cost, but these details sometimes get stuck in the pipeline and you want these numbers to hand in case you need clarification after the transaction is complete.
After the redundant positions have been closed, try to merge entire accounts.
The more you balance your investments, the easier it is to monitor your progress. In addition, investing in a brokerage account with some mutual funds can result in lower fees or qualify you to receive a higher level of advice (at no additional charge) from the firm.
And when it comes to IRA savings and 401 (k), 403 (b) and other workplace plans, the consolidation will simplify the calculations for the required minimum distributions that investors will need to make from these accounts over the age of 70.
There’s no real reason to keep old 401 (k) and retirement plans separate once you’ve left the company. Instead of sticking to what the employer selected / offered – with accounts representing every job you’ve had – move your money into a rollover IRA.
This allows you to control the system selection.
If you are combining IRA savings or cash in former employer plans, make sure your accounts are registered the same way. Name changes and other problems can delay or thwart consolidation plans.
Also, make sure the money flows as directly as possible and avoid the potential clutter that you leave with a payout – and tax nightmare – rather than a consolidation.
Many investors also have a few broker accounts because they fear that having everything in one company is a recipe for disaster if the company collapses.
This caution is not really necessary because the government-authorized Securities Investor Protection Corp. Protects investors in these cases. Lehman Brothers broker clients lost no money when the company collapsed in 2008; There is no reason to expect future failure to be worse.
It’s okay to have separate firms for different types of accounts – one brokerage firm for your taxable investments, another for your retirement accounts, etc. – especially if you can organize / manage your money in your head, but otherwise leave simplicity and gain rationalization.
If you make these changes, make sure your accounts are properly titled and registered, and then double-check the beneficiary names.
The best part of a portfolio cleanup? You solve these problems for a lifetime; Once fixed, the burdens are gone.