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The Major Differences Between a Collection of Investments and a True Financial Plan

Updated: Oct 29, 2021

As we go through life, it is very common to accumulate financial assets in various employer plans or financial institutions. This usually happens because it is the path of least resistance to simply leave the money where it started simply. Sometimes we even convince ourselves that leaving the money “spread around” is a diversification method that makes our financial standing more secure. There is also a degree of comfort keeping funds in the accounts you may have successfully grown over the years. The potential errors of these strategies are that you end up with a collection of investments rather than a financial plan with all of your resources working together towards your goals. I have compiled the following list of reasons a consolidated financial plan might be a superior way to achieve your goals.

1. Precise Asset Allocation

One of the main ways to safeguard your finances is through proper asset allocation. You are spreading risks across all market segments according to your time horizon and investment goals. If your assets are held in multiple accounts with different financial advisors, coordinating and monitoring your asset allocation is nearly impossible. Another common problem with multiple accounts is portfolio overlap or duplicating investment strategies. In other words, you may have multiple accounts but not be achieving the diversification you believe various investment accounts provide. Consolidating your accounts can focus your efforts on your situation and goals.

2. Tax Efficiency

Nobody likes to pay more taxes than necessary on their investment accounts. As the saying goes, “It’s not what you make. It’s what you keep.” The consequences of items such as, which accounts to take distributions, tax loss strategies, and social security taxation can be better coordinated if assets are consolidated into fewer accounts. You may even save money on tax preparation with fewer tax documents to process by simplifying your financial life.

3. Distribution Planning

Income is the name of the game in retirement. Where will it come from? If you have multiple accounts, planning income can be complicated. Every account you have will have its procedure for withdrawal. Keeping track of the performance and tax consequences of your investments and distributions can become overwhelming. You may have retired, but it might feel like you are working as a part-time accountant. Planning income from one source will allow for better decision-making and far less effort.

4. Required Minimum Distribution

If you have saved money in tax-deferred retirement accounts, you will face Required Minimum Distributions (RMDs) at age 72. Failure to withdrawal the proper amount will result in one of the stiffest penalties in the IRS code - 50%! If your accounts are held in different institutions, you must be sure you have aggregated the account totals accurately to calculate the proper RMD. This becomes even more complicated if you take regular income payments from one IRA and not the others.

5. Transaction Efficiency

Some strategies can only be done if accounts are held at the same institution. For instance, if you held stock in an IRA and you had to take an RMD, you may be forced to sell the stock. If you had a taxable brokerage account at the same financial institution, you could do an in-kind transfer of the stock and maintain ownership of the shares.

6. Cost Efficiency

A significant benefit of having your assets consolidated is the potential savings on investment management fees. Managed accounts and even mutual funds generally will be cheaper with more assets on the same investment platform. You will also potentially avoid extra account fees that might exist with each account you hold. These fees could have a significant impact on your long-term results.

7. Integrated Reporting

It can be a challenge to keep track of passwords needed to access various accounts in our digital world. By consolidating, you will have one access point to all of your financial information. Most financial institutions have robust reporting and monitoring tools available to account holders. If you are spread across multiple accounts, you will not be able to take full advantage of these tools without account aggregation. Having a complete view of your financial life can offer peace of mind and improve decision-making.

8. Simplify Your Financial Life

One of the benefits of working with one financial advisor is the simplicity of having one place to call for all of your financial questions. Your financial advisor can serve you at the highest level if they know and oversee your complete financial picture. Imagine going to three different doctors that did not know what each other had prescribed. The outcome might not be as planned. You do not have to carry the burden of financial management alone. Find an advisor that you feel comfortable with and can communicate with ease.

Schedule A Consultation with an Experienced Financial Advisor

Here at Fourth Avenue Financial, our first priority is your overall financial success. We want to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online:

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.

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