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Everything in Balance

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By Dave Sandstrom

Occasionally, clients present me with surprises. After numerous meetings and carefully enacting an investment portfolio allocation and plan, they sometimes reveal something that has a material impact on the strategy.

“Did I tell you that I have a thousand shares of XYZ Company?” they’ll say, or “I failed to mention it, but we have a substantial amount of money in CDs.”

Holdings outside of the funds that you have with your advisor are still assets that need to be considered in your overall risk profile and allocation plan.

As a financial advisor, I continually discuss the merits of a properly balanced portfolio with my clients. Managing assets requires advisors to have a comprehensive understanding of the client’s risk tolerance, future goals and retirement needs. That understanding is key to successfully creating a balanced portfolio that gives clients the best chance of meeting their individual goals.

One of the most critical aspects of this process is providing your financial advisor a complete picture of your financial assets.

Assets that should be considered in your allocation strategy include:

  • individual stocks
  • bonds
  • other brokerage accounts
  • investment properties
  • large cash balances in savings or checking accounts
  • certificates of deposit
  • annuities or other insurance products with large cash values
  • pensions
  • 401(k) or 403(b) retirement saving plans

Do not include assets that are illiquid or difficult to price. Jewelry, vintage cars, artwork, antiques or stamp collections – while potentially valuable – should be considered part of your portfolio only after they have been converted to cash.  (There are exceptions, of course. You probably should inform your advisor if you own an original Picasso or a 1962 Shelby Cobra.)

In addition to having a full account of your assets, you and your advisor should make sure that your allocations in other brokerage accounts and 401(k)s are in line with your goals.

Have a solid understanding of how your money is invested inside your retirement accounts. Know what your options are for selecting investments and making changes in those accounts.

Most 401(k) plans allow you to change your investment elections for new money going in as often as necessary but limit how frequently you can move existing money between funds. Once you and your advisor arrive at the appropriate allocation, reviewing the selections a couple of times a year should be adequate.

Communication throughout this process is very important. I recently had clients tell me that they were invested “very conservatively” in their 401(k), which was considerably larger than their brokerage account.

I requested a copy of the statement to find that more than 80% of the money was in a stock fund, and their idea of “conservative” was very different than mine. After further discussion, we determined together that it made sense to change the allocation in their 401(k) to align their risk level with their specific goals.

Your financial success will rely heavily on creating and implementing a sound investing plan. Proper allocation is critical to this success, and making sure that you are taking all of your assets into consideration will give you the best chance to reach your goals.

Dave Sandstrom is vice president at Landaas & Company.

(initially posted Oct. 10, 2013)

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