If you’re an investor, you probably have several brokerage accounts, a 401(k) or two and a Roth IRA. Over time, it’s easy to accumulate multiple accounts for a variety of seemingly great reasons. Before you know it, you end up with a jumble of accounts with an abundance of assets and no central investment organization system. These investment moves can save time for what really matters!
As tax time rolls around and the 1099’s pour in, you realize that you can’t hide from your investments. If you want to simplify and organize your financial life, now is the best time!
Make these 6 investment moves today for a financially stress-free tomorrow.
1. Review All Accounts and Investments
The more accounts and holdings you have, the more upkeep is required. Whether you use Quicken, Personal Capital or another financial management system, tracking accounts and investments is required.
The first step on the path to financial organization and simplicity is to total your accounts and holdings. Once your complete list is created, you’re ready to begin the simplification process with these investment moves.
2. Consolidate Accounts and Investments Whenever Possible
Roll over old 401(k) accounts into a new or existing IRA. That way, you have more control over the investments and might even eliminate one account (if you can roll over the 401(k) into an existing IRA).
If you have more than one similar-type IRA such as 2 Roth IRAs or 2 traditional IRAs, then combine them into one. Consider rolling over a traditional IRA into a Roth.
When a CD matures with the high return, eliminate the account and invest in a high-yield money market mutual fund. With rising interest rates, you’ll be poised to increase your cash returns. Three high-yield money market mutual funds are Vanguard Prime Money Market Fund (MUTF:VMMXX), Fidelity Money Market Fund — Premium Class (MUTF:FZDXX) and Schwab Value Advantage Money Market Fund (MUTF:SWVXX).
After reducing the number of accounts, you’re ready to further organize and simplify your finances.
3. Revisit Your Asset Allocation and Rebalance
Your asset allocation drives future returns. So pay attention to percentage of your money you invest in stocks, bonds and cash assets. Typically, greater stock allocation equates with higher long-term returns, but also greater portfolio volatility.
So, take an asset allocation quiz to figure out what percentages you want to allocate to stocks, bonds and cash. In general, younger investors can tilt towards greater percentages of stock assets.
Once your allocation is set up. Make certain that your investments reflect your personal asset allocation. So, your 75 percent stock allocation and 20 percent bond target with 5 percent for cash should be updated once per year. That means, if your stock allocation increases to 80 percent and bonds to a 15 percent weight at year end, then sell 5 percent stocks and buy 5 percent bonds. This keeps portfolio volatility in check and may increase long term returns too.
4. Set up a Tax Organization System
With the new tax legislation in place, more folks will be taking the standard deduction. That should make tax prep easier. But it’s important to understand how the new tax law will affect you specifically. For instance, will your state and local tax deduction be capped? Will you miss out on the opportunity to deduct all your mortgage interest or charitable deductions?
If you have a small business and complete a Schedule C, get the categories and record keeping in order. Then, input the deductions into a computer program such as Quicken throughout the year, so tax time isn’t a time drain.
5. Create an Index of Your Financial Accounts and Investments — Just in Case
It’s a relief to have your investments and taxes in order. That makes the task of updating and maintaining accounts less time-consuming. Ultimately, it frees up time and energy better spent of other activities.
Yet, you must make sure that you have others who also understand the financial systems, as a failsafe. Even if you handle all financial matters in the family, your partner must also know what’s up, should anything happen to you.
Set up a spreadsheet of all log ins, account locations, passwords and financial information. Save it to a secure location and upload to a USB drive as well. As an extra precaution, you might print out a copy of all the relevant data and put it in a safe.
Once your financial life is in order and your loved ones informed, you have one less worry and more time for what matters.
Barbara A. Friedberg, MBA, MS is a veteran portfolio manager, expert investor, and former university finance instructor. She is editor/author of Personal Finance; An Encyclopedia of Modern Money Management and two additional money books. She is CEO of Robo-Advisor Pros.com, a robo-advisor review and information website. Additionally, Friedberg is publisher of the well-regarded investment website Barbara Friedberg Personal Finance.com. Follow her on twitter @barbfriedberg and @roboadvisorpros. As of this writing, she does not hold a position in any of the aforementioned securities.