We all have that junk drawer in the kitchen, the closet in the guest bedroom or the trunk of our cars that are filled with clutter. Whether it’s a childhood keepsake, a ten-year old sweater, a spare key to your neighbor’s house or pizza coupons, we all have things that we’ve accumulated through the years. Each time we venture into one of these spaces, we find something that was important to us at some time in our past, but has been neglected and forgotten. Until you clean out that drawer or closet, and if you’re like most, you’d rather delay completing that chore, you really don’t know what you have.
The same holds true with many investors and their financial investments. You may have begun your investment journey years ago by enrolling in your company’s 401k or starting a Roth IRA. Through the years, you have accumulated assets, just like you accumulated stuff in your home or car. If you changed jobs or moved to another town, your assets may have stayed where you left. You focused on other more pressing aspects of your life, such as buying a home, or educating your kids. Many investors look back and realize that they have a significant pile of financial clutter that is preventing them from being successful. Whether it’s seven different brokerage accounts, old IRAs and 401(k)s; or individual stock certificates that you’ve purchased directly through the company during the years, chances are you have significant financial clutter that can impair your ability to meet your financial goals.
So where do you start? The first step you have to take is making the commitment to get serious about your financial future. If you have investment assets that you’ve ignored or forgotten about, you have to make a commitment to change the way you live your financial life. Just as folks who want to lose weight and keep it off have to embrace a new lifestyle, you have to change the way that you live and your approach to your financial investments. Getting serious about your investment goals allows you to move to the next step.
After you’ve gotten serious about the task ahead, you then have to take an inventory of what you have. Find all statements, CDs, stock certificates that you own and put them in a folder or in an Excel spreadsheet. Take inventory of all of your assets. Do you have five different brokerage accounts around town? Having more than one investment account doesn’t mean you have a purpose-built, diversified portfolio. It just means you have more than one investment account. Does your broker know about your CDs at the bank? Does your insurance agent know about the 401(k) from your last job? Financial clutter creates isolated pockets of assets that actually increase the risk of your investments. Would you want to buy more of an international stock investment if you remembered that you already owned it in an old investment account? It’s impossible to create a well-diversified portfolio to target your goals unless you take inventory of what you have.
After you gone through your unopened mail, file folders in your desk, and remembered the online password to your retirement account, it’s now time to make sense of the investments that you have. What should you keep, and what should you eliminate? Just like a thorough “spring-cleaning” of your house, you need to ask yourself, why should I keep this account or investment? How has it helped me in the past year, and how is it going to be meaningful to me in the future? More importantly, how is that account invested? What risks do you face if the stock market goes down or interest rates go rise? These are both important questions that many families with financial clutter can’t answer. If you can’t do this yourself, it’s time to seek professional help. Just as folks trying to lose weight need a coach to help them change their life, hiring an adviser to assist you in understanding how what you own can be beneficial to your success. Getting serious about your investments and taking inventory of your assets are the precursors to understanding the amount of risk you’re taking. I hear from prospects all the time that they have an old brokerage account but haven’t heard from their broker in years. When asked, they can’t tell me the value or how the old account is invested. Market downturns show us that blind faith isn’t a sound investment strategy. Financial clutter potentially can create unnecessary risk in your life and impair your ability to meet your goals. Bottom line: it can cost you a lot of money and prevent you from meeting your financial goals.
After you’ve uncovered the risks in your portfolio, the final step is to develop an action plan. Once you pulled all of the clutter out of the drawer, it’s important to create a financial roadmap, a clearly defined purpose, for those pieces of your personal financial puzzle. Without this purpose, investments may be accounted for, but are shoved back into the hiding place from whence they came. It’s imperative that you answer the question, “Why am I investing?” Steven Covey once said, “Begin with the end in mind.” IRAs and 401(k)s are used as retirement savings vehicles for workers, and income sources for retirees. The allocation of those accounts should reflect your retirement plans. Also, if you own individual stocks, it will be inherently more risky than a diversified blend of other investments. Is it worth the risk to aim for higher returns? Serious investors are more concerned about risk than they are about return. They’ve worked hard to save what they have, and they need a plan to help them distribute that money back to them in retirement. As we’ve touched on in past essays, it’s important to work with a fiduciary advisor, not a salesperson, when dealing with financial clutter. Often times, insurance sales people and stock brokers are leading causes of investor’s financial clutter. They charge commissions for their services and have little or no incentive to follow up or service a relationship two years down the road. As you accumulated products, accounts, CDs, stock certificates, IRAs and annuities, you’ll be bogged down with too much unorganized clutter.
So, if you have some old financial keepsakes, or even unknown mothballs, in your investment closet, make 2010 the year that you get serious about decluttering your life and charting a course for a more organized, safer financial future.
Managing Partner, Wealth Adviser