Making Cents: Cleaning out your closet
By: John P. Napolitano, CFP®, CPA, PFS, MST
When it comes to investments, few things make people happier than seeing their money grow. For those who have been investing a long time, you know that not every period (day, month, quarter or year) will make you happy. In fact, it was just ten short years ago when people were so bummed out about what was (or wasn’t) happening in their accounts, a few clients confessed they weren’t even opening their statements.
In good times, most people love to open their statements and see growth. But it has occurred to me that there are often a collection of smaller accounts that don’t get the respect that they deserve. I’m talking about some of the older 401K accounts or scattered investment accounts that you may have set up over the years. You may even have an old pension that is so small that it too can be easily forgotten.
My message here is for you to take inventory of any accounts that you may have that are not getting much attention by you or anyone else. You may find the same collection of investments that you selected a long time ago, without ever reviewing or updating your holdings. In an old 401K plan, for example, there usually isn’t anyone that is going to contact you or offer advice when they notice that your portfolio hasn’t changed in decades. And in many cases, even if you call the phone number on your statements, they’ll tell you that they aren’t allowed to give you advice regarding your holdings. You may get directed to a website where you may find some helpful information… but the degree of helpfulness will vary based on your knowledge, experience and the amount of time you want to invest.
Besides the possibility of an old 401K, I also see many older investment accounts with a wide array of holdings. Some investors think that because their holdings are spread out across several financial institutions that they have diversified portfolios. You may have diversified your custodians, but not necessarily your portfolio. Ironically, when put under a microscope many of these multi-account investors have similar holdings and allocations across the multitude of accounts. The only way to find out for yourself is to pull out all of your statements and analyze them as if it were one account.
You are looking for the overall allocation of all of your accounts combined. Next examine your tolerance for risk and your need for investment returns, and decide if you need to make any changes. As you make changes, be careful about taxes. Creating capital gains by selling investments isn’t the worst thing, after all it is the prime mission of investing. But use this opportunity to also practice ‘asset location’. Asset location means making the moves in a tax friendly way and then setting your allocations so the least tax friendly investments owned may perform better without the burden of current taxation.
John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.
Asset allocation does not ensure a profit or protect against a loss.