Searching for something on my desk and finding it can be two very different things in my life.
Last week, while looking for something I needed, I came across a small pile of paperwork that I had been pushing away for a few years. These were forms that a brokerage firm had sent me when I inquired about how to consolidate some of my holdings, by transferring some shares I had inherited to my main brokerage account (where I held shares in the same companies).
Transfers like this should be straightforward, but that big document with little stickers pointing to places that needed details and signatures was proof that it wasn’t. Disliking the hassle, I put it off for years. Likewise, I also procrastinated on consolidating two Roth IRA accounts and rolling over a retirement savings account from a former gig.
My statements reminded me that I hadn’t simplified anything, but I avoided the hassle, until I found these documents (instead of what I was looking for) and decided it was time. Plus, I was pretty sure – and ultimately correct – that the changing world of financial services is making portfolio consolidation easier than ever.
It turned out so easy, in fact, that it prompted me to clean up my financial accounts; it could also give you a game plan to simplify your financial life.
Usually, simplifying finances comes down to investing, cleaning up a portfolio by getting rid of laggards, underachievers and disappointments.
It’s important, but it should be an ongoing process. Eliminating wallet clutter is different.
Cleaning a wallet is in many ways like emptying a cluttered attic or closet. You mostly know what’s there and why, there’s a lot of stuff 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. to see him.
But cleaning up a wallet can save money, improve investment returns, simplify tax registration and filing, and make life easier for family members who might one day need help with managing and / or inheriting. of your money.
Start small – looking at the chunks that are building up in your portfolios – and branch out.
Since you’re putting your investment performance aside for another day, instead take a look at your smaller holdings and ask yourself why they aren’t making up a bigger chunk of your life. These small items are easily forgotten or misplaced over time, which is a big part of the reason there is an estimated $ 50 billion in unclaimed investment property held by state treasury departments across the country. .
It could be a few dozen stocks derived from one of your main holdings, or a mutual fund, direct purchase, or other investment that you bought years ago. thinking that you would only add to your holdings to stop deposits when performance was lackluster.
It could also be any security in which you have lost interest or which is now insignificant in the extent of your holdings, something that you bought years ago with all you could spare, but which years later is an insignificant fraction of your holdings. Or, as in my recent case, it was the same security held on two accounts.
These are easy decisions.
These days, asset consolidation is straightforward, usually involving an online transfer request from the institution receiving the money. This company should be able to grab the titles you specify and move them – or absorb the entire account – in days and without the pile of paperwork.
If your moves are in taxable accounts, keep copies of all cost master data. These details should be passed through automatically, so that your consolidated holdings reflect the correct total cost, but sometimes these details get stuck in the pipeline and you’ll want these numbers handy in case you need to clarify things once the deal is done. finished.
Once unwanted positions are closed, seek to merge entire accounts.
The more you group your investments under one roof, the easier it is to track your progress. Additionally, having investments in a brokerage account may mean lower fees on some mutual funds, or it may allow you to receive a higher level of advice (at no additional cost) from the company.
And when it comes to IRA savings and 401 (k), 403 (b) plans and other work plans, the consolidation will simplify the calculations of the minimum required distributions that investors must withdraw from these accounts once they have. reaches the age of 70.
There is no real reason to separate the old 401 (k) and retirement savings once you have left the company. Rather than going with what the employer has chosen / offered – with accounts representing every job you’ve had – transfer your money into a rolling IRA.
This allows you to control the investment selections.
When you combine savings or IRA money into plans offered by previous employers, make sure your accounts are registered in the same way. Name changes and other issues can delay or frustrate consolidation plans.
Also, make sure the money is flowing as directly as possible, avoiding any potential mess that would leave you with a withdrawal – and a tax nightmare – rather than a consolidation.
Many investors also have a few brokerage accounts fearing that having it all in one business could be a recipe for disaster if the business collapses.
This caution is not really necessary, as the government-licensed Securities Investor Protection Corp. protects investors in these cases. Lehman Brothers’ brokerage clients did not lose any money when the company went bankrupt in 2008; there is no reason to expect any future failure to be worse than this.
Keep separate companies for different types of accounts – one brokerage for your taxable investments, another for your retirement accounts, etc. – is fine, especially if it helps you organize / manage your money in your head, but if not, let the simplicity and streamlining win.
When making these changes, make sure your accounts are properly titled and recorded, and review the beneficiary designations.
The best part of a wallet cleanup? You solve these problems for life; once repaired, the burdens are gone.