Spring might be early this year, so consider spring cleaning on your investments
Punxsutawney Phil – arguably the most famous groundhog of all time – did not see his shadow in 2024, making a rare prediction for an early spring this year. In fact, it was only the 21st time since the late 1900s that Phil has predicted an early spring. Further, according to the Punxsutawney Groundhog Club’s records, cross-referenced with past weather data, Phil has only been accurate in his weather predictions about 39% of the time. And as an investor, it might make you nervous that Phil saw his shadow and pessimists might have predicted a dark stock market in 2023 – but that didn’t happen. Or could it be that maybe Phil just doesn’t like spring, because since 1887, Phil has predicted more winter more than 100 times. But not in 2024.
So, in the spirit of hoping Phil is right this year, let’s talk about how you can spring clean your investments now so that you can move beyond your long shadows and make sure you’re not overly dependent on stock markets reaching new highs.
Call it 2024-Investment-Spring-Cleaning in two simple steps:
1. Consolidate your scattered investment accounts and
2. Weed out overlapping positions to make sure your holdings are diversified.
Scattered holdings are like hanging your clothing in closets throughout the house or stowing them in boxes, out of sight. Imagine dressing for a formal occasion but running from closet to closet to piece together your outfit. It’s the same with financial accounts. If you have accounts scattered all over the place, it can be hard, and often impossible, to understand what you’re invested in, and where all your money is located.
A mishmash of assets is the enemy of good financial planning. If you don’t know where your money is, you can’t minimize taxes by knowing how much is taxable versus tax-deferred. You also can’t know or remember what you have where, and what should be rebalanced.
An example of a need for rebalancing: The 50-50 mix you want in stocks and bonds could now be 70-30, and must be brought back in line. Here are some guidelines for the number of places you should hold investments:
One current 401(k) or 403(b) plan per person. Take all 401(k) and 403(b) plans from previous employers, and roll them into a single individual retirement account. Please consult your financial advisor to review all options available on rollovers.
We recommend considering no more than two brokerage accounts per individual or couple. Some folks have a checking account at one brokerage house, but most or all their holdings at another. That’s okay, but going beyond two of them gets messy. Having money spread across several brokerage accounts to “see how each of them is doing” makes no sense. That means no single advisor can know everything you’re invested in, so they invest on your behalf with blinders on. Unnecessary, overlapping investments are often the counterproductive result.
We recommend considering no more than two banks for certificates of deposit, checking and savings per individual or couple. You may have some CDs at one bank but use another for checking or savings. But no more than two.
If you have several annuities and they aren’t burdened with surrender penalties, these you may consider consolidating. Make sure you talk to your advisor or consult us before you just roll them over via a 1035 exchange, which allows you to liquidate an account and not be taxed on its growth because you move it into a comparable vehicle.
The same holds true for insurance. The fewer policies you have, the better. One provider is usually enough for each kind of policy: life insurance, property-casualty, disability and so on.
Let’s turn to another target for spring cleaning: an excessive number of mutual funds. Too often, they duplicate each other. Redundant investments give you asset class concentration instead of asset class diversification. Everyone should have the right portfolio mix of the basic asset classes: short- and intermediate bonds (possibly municipal, corporate and global), large-, mid- and small-capitalization U.S. stocks, international developed markets stocks, and emerging markets.
The appropriate weighting of each asset class is determined by your risk tolerance, income and/or growth needs. How do you know if your mutual fund holdings overlap? You likely won’t be able to tell if they just by looking at the name alone. Consult us or speak with your financial advisor for an explanation.
In case you don’t know, Punxsutawney Phil is pointing his nose, not so much looking for his shadow. What really happens is that after Phil’s “handlers” retrieve him from his log and hold him high for everyone to see, they place him on a platform in front of two scrolls, each containing a prediction for either an early spring or six more weeks of winter.
Phil points his nose at one of them and his “prediction” is given. And as investors, we can’t ignore the noshadow of 2024. It is prudent to start spring-cleaning your investments today – no matter how quickly spring comes this year.
Please reach out to email@example.com to discuss how we can assist with you financial spring cleaning.