The most challenging part of sitting down to write is always getting started. The same can be true of managing your investments. When we speak with potential clients, one of the most common phrases we hear is, “I’ve been meaning to get all this organized”.
Clients often come to us with significant assets that they’ve accumulated throughout their lives and careers. Many have excellent savings habits and are impressive businesspeople. In spite of that, (and sometimes as a result, given their lack of extra time) their investments are a jumbled mess. A 401k spread across 15 mutual funds. A brokerage account containing 12 stocks that a friend of a friend recommended 10 years ago. An annuity that hasn’t been evaluated since it was purchased back in 2003. The list goes on.
You may have kept better track of your assets than this. Alternatively, you might not have had the time and find yourself in the same boat. So, what should you do? How can you determine your current standing?
If you have any doubts about your situation, I strongly recommend getting a second (professional) opinion. Working with a financial advisor, especially one with an understanding of broader financial planning topics (taxes, estate, retirement, etc.), can provide peace of mind. Many firms, Buckhead Capital included, will help you to evaluate your current circumstances regardless of whether you become a long-term client.
Whether you’ve managed your investments on your own, haven’t given them much attention, or currently work with an advisor, there are a number of basic questions about your investment strategy that you or your advisor should be able to answer easily.
Q: What is my asset allocation (specifically, stocks to bonds)? And why is that my allocation? Am I implementing this allocation in aggregate across my various investments or have I only thought about this as it relates to my 401k or my taxable account or my IRA.
A: Asset allocation is a topic that is both broad and deep. Most importantly, it serves as a control for risk in your portfolio. A well-structured asset allocation will bring diversity to your portfolio and target a risk level commensurate with your goals and comfort level. Furthermore, asset allocation should be viewed from an aggregate level – if your asset allocation strategy is only applied to certain investment accounts, you are not getting the diversity and risk control you’ve targeted.
Q: Are my investments working with each other?
A: For most households, your various investments are working towards a common goal – a secure and comfortable retirement. With that in mind, the investments should be structured to work in concert. Your Roth IRA, your 401k, your joint account, whatever it may be should all share in-part the same strategy. For example, an account where you “play around with” stock-picking likely does not offer the same risk and prospective return that your mutual fund-based 401k does.
Q: Do I really know what I am invested in?
A: In many cases, mutual funds and ETFs are a great solution for investors, BUT you should understand what they contain and what they cost. Often clients come to us with an array of funds across a variety of accounts. From a bird’s eye view this looks great, right? More funds, means more diversity, right? Unfortunately, not always. Often, the holdings in these funds overlap.
Q: What costs am I paying for my investments?
A: Most advisors charge a direct fee based on the assets they manage on your behalf. What many individuals don’t take into consideration is the fee charged through the investment itself (these come in the form of an expense ratio for mutual funds and ETFs) and those charged by the broker (these come in the form of transaction fees anytime an investment is bought or sold). These costs vary widely depending on investment selection and the institutions holding your accounts and can have a meaningful impact on long-term investment performance.
While the best investment philosophy will be debated until the end of time, the cornerstone principles addressed in these questions are of paramount importance and will remain indefinitely. Once you answer these for yourself, you’ll be well on the way to a more organized picture of your finances.