During tax season, it’s time to take stock of your investment accounts and consider how you can make improvements to your portfolio. When was the last time you thought about your long-term goals and updated your advisors about your plans? What changes have happened in your personal or professional life over the past year? Do you have investments spread between many different accounts, managed by different advisors? Sometimes investors falsely believe that holding numerous investment accounts means they are well-positioned and diversified. However, this is not always the case.
There are many moving parts to financial health and stability. It’s important to review each of your accounts and make sure that all of your advisors are on the same page in terms of your growth and income needs. Your advisors not only include those that manage your investment accounts, but also, your CPA and attorneys. Make sure that your tax situation and estate plan are reflected in the investments that you and your advisor choose to include in your overall portfolio.
A lack of coordination between your advisors can lead to missed opportunities for growth, too much risk, and/or repetition among your underlying investments. It’s important to sit down with your primary advisor and complete a thorough review of ALL of your investment accounts together – this way you can determine whether you have investment duplication or if some of your positions should be replaced.
Over time, your goals and needs change, and so should your portfolio. Make sure you review your accounts at least annually to stay on track. When reviewing your complete investment portfolio, include the following assets: retirement savings, college savings plans, stocks, bonds, and mutual funds, annuities, insurance, bank accounts, and real estate. While you may have diversification in one or more of your accounts, perhaps you also have an aggressive stock portfolio that should to be offset by more conservative assets held elsewhere. It’s not enough to have balance in one account – your entire portfolio must meet your objectives and match your personal risk tolerance and time horizon.
So, how can you ensure that your portfolio continues to meet your needs? Make sure you understand the tools offered by your advisor to analyze your accounts. Will these tools provide you with a breakdown of underlying investments? Do you have access to the reports that can explain the level of risk for each of your investments? What process does your advisor use in the selection, monitoring, and replacement of investments?
If you’re feeling bogged down by the number of accounts you hold, it may be time to see if account consolidation is an option. For instance, you may be able to combine 401(k) plans that were set up through your former employers into one Rollover IRA. If you have several taxable brokerage accounts, you might be able to consolidate them into one account also. As long as your advisor is managing your risk through diversification, account consolidation can be a simple way to improve your overall portfolio.
To help keep track of your investments, ask your advisor to provide updated performance reviews that show an inventory of all of your investable assets. A picture is worth a thousand words, so seeing everything in one report can help to clarify your goals. Most importantly, remember to facilitate an open dialogue with all of your advisors, and when possible, set meetings to discuss your updated needs and goals together.
During this tax season, take the opportunity to review the past year’s income, achievements, and setbacks, but also make sure to focus on improving your position for the year ahead, and developing a better understanding of your full financial situation.