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Simplify Your Investments — and Your Life

Oct. 3, 2014
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By Brian McCann

Learn more about Brian on NerdWallet’s Ask an Advisor

Our daughter Quinn was born with a full head of luxurious, dark hair. Unlike most infants, hers never fell out. Over the years, we let it grow. Everyone complimented her on her long hair.

Last month we cut it all off.

My wife and I are on a quest to simplify our lives. As anyone who has, or had, two children under the age of 3 can attest, things get complicated quickly. Quinn is a typical 2-year old: She has all the time in the world to negotiate anything she wants to do – or not do. And she decided she didn’t like to brush her hair or wear barrettes. At the end of the day, she looked like the feral child from the movie “Mad Max.” We saved at least 15 minutes each morning and evening with her new hairdo.

Simplification is an important lesson in investing as well. Often I see investment accounts littered with a mishmash of funds and investments: the great fund your co-worker recommended, the stock tip from your cousin, that awesome tech IPO from 1999. They all seem to pile up in your brokerage, IRA and 401(k) accounts. Add in several job changes, and you quickly end up with a hodge-podge of old accounts and half-remembered investments.

If this sounds like you, here are some steps you can take to streamline your financial life:

Write it all down. Better yet, put it in a spreadsheet. Look at everything you own no matter where it is located. Classify what you own: stocks, bonds, alternatives, REITs, etc. Just completing this step can be incredibly illuminating.

Move it all to one place. This is probably the hardest step, but it’s the most important. Try to get all your accounts to one custodian. If you are married, try to get your and your spouse’s accounts to the same custodian. Yes, the paperwork is difficult, but it will be worth the effort in the end.

Develop one strategy. Don’t think about your accounts; just determine your overall investment strategy.

Implement your strategy across your accounts. Put tax-inefficient products (bond funds, REITs, etc.) in your tax-advantaged accounts (IRA, Roth) and put your tax efficient investments in your taxable brokerage (stock funds and ETFs, etc.).

Revisit your strategy once a year. Rebalance your accounts in line with your original strategy.

Life will make your finances complicated enough. Try to keep things as simple as possible for as long as possible. Recently, the California Public Employees Retirement System (Calpers), the $298 billion California pension fund, decided to jettison its hedge fund allocation. And the reason they dumped the funds? Complexity. We could all use a little Calpers wisdom.

By the way, Quinn looks adorable with short hair, and she gets just as many compliments as she ever did.