Spring Cleaning for Your Financial Portfolio

By on May 13, 2015 in Current Events, Retirement with 1 Comment

This article is co-authored by Brett O’Brien

Spring is finally here! You know that what means…Spring Cleaning! Some people love it, some hate it, but either way it is a great way to say “out with the old and in with the new.” Spring Cleaning is basically just trimming away the excess, updating, and even evolving. It’s a great idea to do this with many areas of your life, not just your home. Here are the three simple steps to spring into action and Spring Clean anything you want…especially your finances!

The Three “R”s

1. Review 

The first step to any good plan is kind of self-explanatory…make a plan! For a home you want to look around at everything you have and decide what can be kept, what needs to be fixed, and what just needs to be thrown away. Your finances work the same way.  Review your accounts.  Some people do this on a regular basis and have spreadsheets they update weekly.  Others, and you know who you are, have scattered pieces all over. Now is a good time to do this since you should have gotten first quarter statements on any investment accounts, and can also go online.  I recommend segregating by type of account: non-qualified personal or joint account, IRA, Roth IRA, retirement plan (401k, TSP, 403b, etc.), inherited IRA, and trust accounts.  List each account by type and then by asset.  Do you have an emergency savings account?  Rule of thumb is to have 6 months of your salary available in a safe liquid account.  If you have significantly more, especially in this low interest rate environment, consider other alternatives.  Alternatives need to be matched with your comfort level and timeframe.  For example if you want safety and liquidity, don’t lock up your funds in a single 10 year annuity.  Conversely, if you need liquidity but are adverse to risk, mutual funds or a brokerage account of stocks, would also not be a good match.  A fiduciary financial advisor can help you explore and evaluate investment options.

Next is to review performance.  Make sure to you are comparing performance to a benchmark that is similar to your investment profile.  If you are conservative and have a conservative modeled portfolio, don’t compare your performance against the S & P 500, which is 100% stocks.  There are a lot of things that you should be looking at when reviewing your portfolio.  Do you know if you have a lot of overlap in your investment holdings?  It is not unusual for me to do an investment review of someone that believes they are very diversified.  They may have the C fund in TSP, some Vanguard accounts with the S&P 500 index, their spouse has similar allocations in their 401(k) and personal savings and a brokerage account with some stocks.  Once we do an overlap evaluation we can identify what are the holdings in each account and determine if a client is too saturated in a few or many individual stocks or if they have a need for greater diversification.  You also want to be sure you are aware of the cost of ownership.  The Thrift Savings Plan is very transparent and currently the fee is .029%.  Mutual Funds are a little harder to determine the real cost you are paying.  Click here to get a copy of 8 Things You May Not Know About Mutual Funds.

2. Remove

Second you need to start removing what you have decided should go. With every little item you remove you have more and more space to operate with and you can start to envision what your completed project with look like. When Spring Cleaning your house this could mean throwing away old furniture, storing decorations, or getting rid of old and unwanted clothes. When it comes to your finances this could mean consolidating accounts to reduce fees, selling investments that are not performing or no longer meet your investment objective or risk tolerance, and managing future tax exposure, perhaps by selling a security that has experienced a loss to which gives you the ability to offset taxes on both gains and income.

3. Replace

This is where you fix what needs to be fixed or replace old things you’ve thrown away. Now the key here is to only do what’s necessary.  You don’t want to throw a bunch of junk in a place where you just cleared all the clutter from, however, if you throw out an old dirty couch you are probably going to need a new place to sit. Generally, you should always replace less than you’ve removed but everyone has their own style and it’s important to tailor your plan to your needs!

This is also a very good time to update your retirement plan or your retirement “roadmap”.  Doing a comprehensive plan is great but it doesn’t stop there.  It is an ongoing process and needs to be updated on an annual basis to see how you are progressing toward your goals.  Things change both in your personal world and the investment world and it’s important to make sure your plan is still in line with your goals.  Sometimes a few minor modifications is all you need or perhaps none at all; just the reassurance that you are on pace with your financial goals.  If you do not have a plan then by all means now is the time to either do one yourself or better yet seek professional guidance from a financial advisor.

These three “R’s” can help guide you through Spring Cleaning anything! Your house, your finances, your car, even your life in general! It’s important we take the time to maintain and clean ourselves out mentally from time to time just as you would any other area. Remove old ideas and stress and replace them with good intentions and ideas for a new year and a new you! Happy Cleaning!

© 2016 Carol Schmidlin. All rights reserved. This article may not be reproduced without express written consent from Carol Schmidlin.

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About the Author

Carol Schmidlin is the President of Franklin Planning and has been advising clients on how to grow and preserve their wealth for 20 years. In addition to her financial planning practice, she is the founder of FedSavvy® Educational Solutions, which provides Financial and Retirement Literacy Programs for Federal Employees. Follow FedSavvy® Educational Solutions on Facebook for the most up to date information. Contact Carol at (856) 401-1101 or visit FranklinPlanning.com.

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