While our name and branding has changed, we are still a holistic, boutique financial planning and wealth management firm that is dedicated to serving all your financial needs.
Many investors know the concept of diversification. Don’t put all of your eggs in one basket, spread your risk, own a little bit of everything…
These are some of the words we hear from families whom we politely refer to as a scattered mess. That scattered mess may be organized, in that you’ve got great records, possibly good performance and statements neatly filed on a timely basis with reports that let you know what you own and how you are doing.
This may sound pretty appalling to many who may feel that my scattered mess comment is a bit harsh. I prefer to think of it as tough love. Tough love in that your great looking collection of investments, buildings and businesses have other needs besides your comfort or being in many places.
The first need may be coordination. It’s uncommon to see many investment accounts in any one family. It may start with an account for his trust, one for her trust, her IRA, 401K and old 401K(s) and vice versa for both spouses all the way down the line. Further compounded by an investor who has these accounts spread in many different places. For example, spreading your $1million 401K rollover into three places may simply confuse matters rather than add value for you.
We rarely see good coordination between the accounts, the collection of advisors, or taking into account the risks of a closely held business or investment real estate.
In many cases, we see very similar holdings in each of the three locations that doesn’t necessarily help your diversification. You now also have three beneficiary elections to keep current and you have that much more junk mail and statements to review or file. If you make three different beneficiary elections, thinking that this is how you may evenly distribute your holdings to the next generation, you may have an accountability or tracking issue to ensure that things stay equal.
Another reason why I may refer to situations like these as a scattered mess is that we rarely see good coordination between the accounts, the collection of advisors, or taking into account the risks of a closely held business or investment real estate. Your closely held business, for example, may well be as risky as an aggressive equity investment. If that business comprises 50% of your net worth, shouldn’t that be considered when deciding how to invest your traditional money such as retirement savings or after tax investments?
Income tax planning may be more difficult when you have pockets of money everywhere. It’s tough enough to plan for year-end moves such as loss harvesting or intentionally generating capital gains because of a low tax bracket or loss carry forwards. Having to search through piles of reports is simply more work with a wider margin of error.
The last issue may be asset location. This means allocating your assets in such a way as to minimize the tax bite or maximize efficiency. For example, holding your higher yielding holdings in a retirement account may make more sense than generating a lot of interest income in a taxable account.