Organize Your Investments in 15 Minutes

Every investment advisor has seen the situation where a new client plops a shoe box or accordian folder stuffed with account statements on the desk and proclaims he or she "needs help."  Although the first inclination is to reach for a bottle of Excedrin or something stronger, it isn't necessarily a bad state of affairs.

In fact, for many DIY investors, it is the beginning that will put them on a path whereby they can breathe easy.

If you don't have statements on your accounts, then you need to take a step back, get online, and print them out.  If you haven't set up your online access, you need to do that.  Don't procrastinate - DO IT!

So, back to the beginning.  Some investors at this point have several savings accounts, a couple of IRAs (both traditional and Roth), a 401(k) or 403(b), etc.  Life is complicated in the 21st century.  Take a Zen attitude, and be happy that you are not in most parts of the world where there are no viable capital markets for securing a retirement.

Step 1 is to order the accounts.  The first group includes savings accounts and regular brokerage accounts.  These are taxable accounts.  Simply, if you earn $1 of interest on the assets in these accounts, you pay taxes on the earnings this year.  The second group includes the IRAs and 401(k) accounts. Here you mostly have accounts built up from pre-tax monies.  Taxes on earnings and capital gains in these accounts will be paid when withdrawals occur.  There are all kinds of rules on these accounts involving when withdrawals can occur without penalty, RMDs, etc. that should be learned as time goes by.  The final set of accounts is comprised of Roths, if any.  For these accounts, taxes have already been paid.

Step 2 is to seek opportunities to combine accounts.  The fewer account statements you have to handle, typically, the more control you have over your finances.  I run into many people who have so many accounts even Einstein wouldn't be able to keep up.  In fact, let me take a potshot:  it seems to me that doctors take a little bit of every financial product that walks through their doors, and a lot walks through their doors!  I've wondered about this and concluded that, because doctors are smart and financial product sales people are clever, there is a natural match-up.  News flash for doctors:  you don't need 6 different annuities (in fact, most annuities are horrible investments; but that's a whole different subject!).

Step 3:  total up the accounts each quarter.  You'll want to look at money market accounts and cash equivalents and ask if the total is what you want for emergencies - think weddings, funerals, roof leaks, erratic employment income, etc.  Looking way down the road, you'll note that withdrawals in retirement will pretty much follow the ordering--with the first withdrawals coming from the taxable pot, then the IRAs, etc., and finally the Roths.  As you look at your contributions, you also want to to put a fisheye over on your credit situation and ask whether the marginal dollar is best applied to paying down debt or going into your 401(k).

So, the bottom line is that spending a little time getting your investment accounts organized is a necessary first step to managing your assets and asking the right questions.