Finding a path through financial clutter may not be easy, but the results will soothe your nerves.
"When I ask clients how
they keep track of investments, their response
invariably is that they don't," says
Bob Nusbaum, a certified financial planner
and president of Middle America Planning in
Pittsburgh. "The problems that result
are that they don't manage their investments
and their costs -- annual fees for various
accounts and mutual fund expenses -- are usually
way too high."
Stocks, mutual funds, 401(k) plans, IRAs, pensions, bank accounts, savings bonds -- these financial instruments and vehicles accumulate over the years like single buttons and paperclips in the kitchen junk drawer. A friend or family member in the insurance or brokerage business sold you a product and it continues to sit in your portfolio out of simple inertia. You bought stock in the company where your father worked for 50 years and selling it feels like a disservice to his memory.
"There's ready advice about purchasing, but rather little about when to sell," says Debra L. Morrison, a fee-only wealth manager at Capital Financial Advisors in La Jolla, Calif. "So a fear of selling what might be an excellent investment paralyzes people. They hang onto things not out of laziness, but out of rank ignorance. But retirement, or the fear of possible job loss, can serve as a wake-up call to get a grip on what you own."
Clear up the confusion now, and keep it at bay by taking inventory of your holdings on a yearly basis.
De-cluttering forces you to prioritize
De-cluttering can help you understand what you have and whether it will be enough to live on after you retire.
By the time they retire, most people will have accumulated
a hodgepodge of investments, usually residing in five common domains:
brokerage accounts that include mutual funds and stocks; a retirement
plan with an employer; bank accounts, including CDs and money market
accounts, life insurance and IRAs, says Diane M. Pearson, a wealth
adviser at Legend Financial Advisors in Pittsburgh.
As a first step in determining whether you have enough
for retirement living, account for all the
assets you have, Pearson advises. "Look
to see which of your investments will provide
the liquidity you'll need during retirement,"
she says. "You may have a pension plan
and Social Security, but that may not be adequate
to cover your cash flow. If it's not, look
at your other investments," she says,
adding that you'll need to determine which
investments to tap first.