Fight Financial Clutter (or Do as I Say , Not as I Do)

As a financial adviser, I’ve seen a lot of clutter in people’s financial lives. I know people who have dozens of financial accounts. Problem is, the more accounts one has, the harder — and more time-consuming and stressful — it is to keep track of everything.

I know one person, for instance, who has about a dozen different bank accounts, three brokerage accounts, and many stocks and mutual funds in these accounts. Though I typically don’t name people in my articles, I’ll make an exception this time — it’s me. I’ll explain my financial clutter in a bit, but for now, do as I say and not as I do.

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• It makes it hard to get a big picture of your financial status, such as your net worth or asset allocation.
• It makes it easy to forget to manage accounts, such as leaving that chunk of cash in a bank account earning 0.01 percent APY for the past couple of years.
• It makes doing the tax return more complex, as each institution typically sends you a 1099 that’s also sent to the IRS. I get dozens of these.
• It leaves your spouse or heirs the impossible task of understanding what they are left with after you pass away.
• It leaves you in the hopeless situation of understanding your portfolio if cognitive skills decline late in life. Simplicity helps protect against financial predators who often prey on seniors.

 

Superiority of simplicity

First, understand that one can build a very diversified, simple and low-cost portfolio at one brokerage firm using a handful of funds I’ve written about known as lazy portfolios. One, known as the Second Grader’s Starter Portfolio, was named after my son and currently has the best returns of the eight such portfolios being tracked by Dow Jones MarketWatch. So one brokerage account, combined with a local bank account, can do the job quite nicely.

Simplicity has value in that it’s easy for anyone to understand, it keeps mail to a minimum, and it makes the investing part of the tax return a snap.

Excuses, excuses, excuses

So if I’m such a fan of simplicity, why am I the “King of Clutter”? I have three reasons and the first two may even apply to you. First, I’m a believer in using bank certificates of deposit over bonds and bond funds. I go with whatever bank or credit union has the best rate as long as it is U.S. government-insured by the FDIC or NCUA. That extra clutter gives me extra income.

Next, taxes are costs. I’ve bought some funds decades ago and would have to pay hefty taxes to sell and simplify. In my mind, the extra clutter defers taxes I’d have to pay Uncle Sam or, better yet, avoids the taxes altogether when I pass away as my son would not have to pay that tax under current law.

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The third reason is particular to me as a financial planner. Whenever I can, I like to buy what I’m recommending to clients so I can experience it myself. Also, under my hourly pay model as a fee-only financial adviser, I need to hold accounts at a couple of brokerage firms to be able to view accounts of other clients. I’ll consolidate when I no longer have this need.

My advice

Admittedly this advice sounds a tad hypocritical, but fight the power of inertia and financial clutter and simplify. When either you can’t simplify or the costs to do so are too great, use tools to keep track of everything. Money aggregation websites such as Mint.com or Personalcapital.com can go to most accounts and pull in current balances. They do require giving passwords for each account, though to my knowledge there have been no security breaches to date.

Simplicity is superior, but for me, it is a distant dream as my clutter doesn’t look like it’s going anywhere for a while.

Photo: Carenas1/iStock

Also of Interest

• A Financial Adviser Exposes Own Portfolio
• JFK: Personal Portraits From a Public Life
• Get Involved: Learn How You Can Give Back
• Join AARP: Savings, resources and news for your well-being

 

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