Bringing Order to Your Investment Universe
Part 1: The Beauty of Being Organized
When it comes to investing, our message has long been loud and clear: Build a well-structured portfolio to capture available market returns while managing the risks involved. Shape it to meet your individual goals and risk tolerances. Keep a lid on the costs. Stay on target over time.
That’s all well and good, but …
What if you’ve been investing a while, but you don’t yet have that “well-structured portfolio”? D
It stands to reason: The more wealth you accumulate, the more chaotic your assets and accounts can become. What begins as a manageable assortment (hopefully) grows. That’s a good “problem” to have, but the sheer volume can eventually overwhelm your organizational efforts.
Then what?
Fortunately, it’s never too late to bring order to your investment universe. In this first installment in our four-part series, we’ll explore some sensible solutions to this perennial challenge, starting with initial steps you can take to move from random results to a more organized approach.
Step One: Take Stock of What You’ve Got
A great way to get started is to figure out where you stand today. What do you currently own? Where are you holding it, and why? Bonus points if you can determine how much your current holdings are costing you in apparent and hidden fees. Do you have funds in s number of different institutions? Consider consolidating your investments in one location to ensure your advisor can provide holistic advice and see the whole picture.
Step Two: Decide Where You’d Like To Go
Next, it’s time to plan - and document - what your orderly investment universe looks like, and how you expect to get there. Review all your accounts with an advisor to identify areas of redundancy and inefficiencies. Having a plan in place can feel incredibly empowering if your investments have gotten out of hand. Making investment decisions based on your overall financial goals can give you direction and purpose.
Strategy: How much risk and expected return are you shooting for? Do you have the time and temerity to take on more investment risk, hoping for higher returns? Or are you better served with a more modest approach -less “exciting” but less likely to fall apart in a pinch?
Target: If you could start with a clean slate for creating your “perfect” investment portfolio, what would that look like? How many stocks vs. bonds, international vs. domestic, and so on? What would be the best funds or securities for achieving your aim?
Tactics: Which of your current investments no longer make sense for your plans? Which might be replaced with better-managed, lower-cost equivalents? What pieces are missing? Are there savings goals you haven’t accounted for in your plans? Have you given enough consideration to estate planning and long term care goals?
Step Three: Proceed as Planned
It’s common for people to accumulate a clutter of investments, forgetting to make sure they still serve a purpose. If you think this is you, consider remodeling: selling unnecessary or overpriced positions, buying others that are a better fit, streamlining duplicate assets and accounts, and otherwise rearranging your financial furniture.
In a tax-free world, you could proceed at full speed. In real life, when you sell positions for more than you paid for them, there can be burdensome capital gain taxes realized in the year of the sale. Plus, if you generate enough taxable gains in a year, it could bump you into a higher tax bracket, which could increase your tax rates across a wider swath of your total annual income.
How do you pursue a tidy transition, given the challenges involved? We’ll offer some insights on that in our next piece, Transitions and Taxes.
If you’re overwhelmed just thinking about it, we are here to help. At Mejlholm Wealth Management we specialize in helping clients through life transitions and establishing well-structured portfolios that take your unique situation into account. Call or email us today.