Searching for something on my desk and actually finding it can be two very different exercises in my life.
Last week, while seeking something I needed, I instead came across a small stack of paperwork that I had put off for a couple of years. It was forms a brokerage firm had sent me when I inquired about how to consolidate some of my holdings, moving some shares I had inherited into my primary brokerage account (where I held shares in the same companies).
Transfers like this should be simple, but this fat document with little stickies pointing to places that required details and signatures was proof it wasn’t. Not liking the hassle, I put it off, for years. Likewise, I also procrastinated on the consolidation of two Roth IRA accounts and the rollover of a retirement-savings account from an old side gig.
My statements were a reminder that I hadn’t simplified anything, but I avoided the hassle, right up until I found that paperwork again (instead of what I was looking for) and decided it was time. What’s more, I was pretty sure – and ultimately correct — that in the evolution of the financial-services world makes portfolio consolidation easier than ever before.
It turned out to be so easy, in fact, that it has spurred me to clean up my financial accounts; it might give you a game plan for simplifying your financial life as well.
Typically, simplifying finances boils down to the investments, to cleaning up a portfolio by getting rid of laggards, non-performers and disappointments.
That’s important, but it should be an ongoing process. Clearing out portfolio clutter is different.
Cleaning up a portfolio is in many ways like emptying an attic or a cluttered closet. You mostly know what’s there and why, there’s a lot that you want to keep, and you don’t really notice the mess – or have to deal with it – when the door is closed and you can’t see it.
But cleaning up a portfolio can save money, improve investment returns, simplify tax recording and reporting, and make life easier on family members who may need to someday help you manage and/or inherit your money.
Start small — looking at the bits and bobs that accumulate in your portfolios — and branch out.
Since you’re setting aside investment performance for another day, look instead at your tiniest holdings and ask why they’re not a bigger part of your life. These small-dollar items are easily forgotten or misplaced over time, going a long way to explain how there is roughly $50 billion in unclaimed investment property held by state treasury departments across the country.
It might be a few dozen shares of a stock spun-off from one of your core holdings, or the mutual fund, direct-purchase stock or other investment that you bought years ago thinking you would add to your holdings only to stop deposits when performance was lackluster.
It also could be any security that you have mostly lost interest in or that is now trivial in the scope of your holdings, something you bought years ago with whatever you could spare, but which years later represents an insignificant fraction of your holdings. Or, as in my recent case, it was the same security held in two accounts.
These are easy decisions.
Consolidating holdings these days is simple, usually involving a transfer request made online with the institution that is getting the money. That firm should be able to pluck the securities you specify and move them – or absorb the entire account – in a matter of days and without the pile of paperwork.
If your moves are in taxable accounts, keep copies of all cost-basis data. Those details should be passed along automatically, so that your consolidated holdings reflect the correct total cost, but those details sometimes get stuck in the pipeline and you will want those numbers handy in case you need to clear things up once the transaction is done.
After the extraneous positions are closed, look to merge entire accounts.
The more you put your investments under one umbrella, the easier it is to monitor your progress. Moreover, having investments in one brokerage account may mean lower fees on some mutual funds, or it may 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, consolidation will simplify the calculations for the required minimum distributions investors must take from those accounts once they reach their 70s.
There is no real reason to keep old 401(k) and retirement savings separated once you have left the company. Rather than going with what the employer picked/offered – with accounts representing every job you’ve had – move your money into a rollover IRA.
That lets you control the investment selections.
As you combine IRA savings or money in plans offered by former employers, make sure that your accounts are registered in the same way. Name changes and other issues can delay or foil consolidation plans.
Also, make sure the money moves as directly as possible, avoiding any potential mess-ups that leave you with a withdrawal – and a tax nightmare – rather than a consolidation.
Many investors also have a few brokerage accounts fearing that having everything at one firm is a recipe for disaster if the company collapses.
That caution isn’t really necessary, as the government-authorized Securities Investor Protection Corp. protects investors in those cases. Lehman Brothers brokerage clients didn’t lose money when the firm collapsed in 2008; there’s no reason to expect any future failure to be worse than that.
Keeping separate firms for different types of accounts – one brokerage for your taxable investments, another for your retirement accounts, etc. – is fine, particularly if it helps you organize/manage your money in your head, but otherwise, let simplicity and streamlining win.
While making these changes, be sure to have your accounts properly titled and registered, and revisit beneficiary designations.
The best part of a portfolio clean-up? You’re solving these problems for life; once fixed, the burdens are gone.
Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life with Chuck Jaffe.” You can reach him at email@example.com and tune in at moneylifeshow.com.
Copyright, 2021, J Features