Keep It Simple

It’s ridiculous how complex most patient visits are. It’s not our fault — we’ve got to deal with legal issues, patient satisfaction, understaffing and so on. Instead of telling the patient, “It’s just a cold,” we order a CBC, CXR and nebs. A patient with every complaint in the book — I like to call positive review of systems — gets a CT scan when really we should just say “You’re crazy!”

That’s similar to how I’ve seen many of you or your financial advisors manage your money — making things far more complex than they should be. So let’s apply Ockham’s razor to your finances and simplify your financial life.

Too many accounts

Do you have more than one IRA? Perhaps you opened one years ago at Scottrade and then another with a mutual fund company. Maybe you have another with your financial advisor. What about your 401(k) from your previous group or employer? Is it still sitting in the same place with poor investment choices and high-cost funds? If that’s the case, then it’s time to consolidate.

Rather than have multiple IRAs spread out over multiple custodians, combine them into one IRA. You can even combine your traditional IRA with your Simplified Employee Pension IRA and transfer your old 401(k) in as well.

Lump your spouse’s taxable account with yours and see if your 401(k) allows incoming account transfers.

Instead of having a separate checking account for personal expenses, make your taxable investment account act as your bank account.

Too many investments

When you’ve got too many accounts you’ve also got too many investments.

Here’s a real example of a physician’s portfolio I reviewed recently:

• 150 individual stocks
• 30 individual bonds
• 80 mutual funds

How in the world do you keep track of all this? Imagine the number of transactions--buys, sells, dividends paid, dividends reinvested, capital gains distributions, stock splits, etc. If you’ve got a taxable account, you’ll have to hire a CPA just to keep track of this.

Do you or your advisor really think you can adequately research so many companies and money managers? Think about the financial statements, charts and economic data you have to pour through. Is this really worth your time and money?

Then there’s the illusion of diversification. Sure, you’ve got a ton of funds and it looks sophisticated. Suppose you own all of these funds:

• American Funds Growth Fund of America
• AllianceBernstein Wealth Appreciation Strategy
• Oppenheimer Main Street Opportunity
• Davis New York Venture Fund
• Wells Fargo Advantage Capital Growth

The fancy sounding names might make you feel good, but it turns out all of the funds are invested in the same asset class. That means there’s a ton of overlap in their underlying holdings. If you think you can pick the winning money managers, just pick one fund and toss the rest. Better yet, if you own a bunch of funds in the same asset class, you own the asset class in an inefficient way. Why not just invest in the Vanguard 500 Index Fund and be done with it?

The bottom line: Consolidate your investments and your accounts to simplify your financial life.