5 Steps to Taking Control and Mastering Your Financial Accounts

How To

If you’re like many people, you have multiple financial accounts: a 401k with your current employer, a 401k at past employer, an IRA, a taxable brokerage account, a savings account, etc.

Sound familiar?

You’re not alone. And it’s certainly not a bad thing that you are putting money away. You’re a step ahead of the crowd. But what can you do to manage all these accounts effectively?

Step 1: Determine the Goals for each account

Not all savings goals are alike. Each of your goals – like retirement, education, or big-ticket expense items –require a different investment approach.

In many cases, you can use specific advantageous savings vehicles – think 401k’s or IRAs for retirement, 529s for education, and various forms of trusts for minor accounts, charitable giving, estate planning, and more.

Don’t lose out on these benefits by keeping your funds in a savings account. Rather, use those savings accounts – or similar liquid vehicles, like a money market fund – for goals like rainy-day savings.

Step 2: Organize

Once you have tagged each account with a specific goal, it’s time to provide an organizational framework that will give you a bird’s eye view of your total financial situation.

When you have multiple accounts, lack of good organization can really impede your ability to make the right decisions.

You know how it goes – papers all over the place, passwords you can’t remember – it’s amazing what a little organizing will do to provide a clearer picture.

Consider an online financial management platform, or at the very least an Excel spreadsheet.

Step 3: Manage By Goal, Not By Account

Your savings and investment strategy should be goals-driven.

In other words, consider your objectives for each goal – like when you need the money and how much you’ll need – and contemplate the amount of risk you’re willing to assume to achieve each goal.

All the accounts you have in each “goals bucket” should be managed the same way.

What we mean by “manage” is a four-step process:

  • locating the accounts in the right type of vehicle
  • allocating the portfolio along asset class weights appropriate for the goal
  • selecting the right investments for each asset class from the universe of alternative choices
  • rebalancing periodically to bring the allocation weights back in line

Why is this four-step process – location, allocation, selection and rebalancing – important?

Because each goal entails a particular consideration for what you are trying to achieve in returns, and how much risk you are willing to assume to get those returns.

Think about it: if your goal is retirement, then your return objectives and risk considerations are going to be the same regardless of whether the funds are in an IRA, a 401(k), a general investment account, or all of the above.

It only makes sense to manage all of your accounts for each goal as an integrated whole rather than separately.

Don’t worry if this sounds overwhelming. There’s help.

When it comes to retirement investing, online services such as Jemstep Portfolio Manager can help you manage your retirement savings accounts as a whole, plus it makes recommendations to help you optimize each account.

And that leads us to the next step:

Step 4: Consolidate Your Retirement Accounts If Needed

You know those 401k accounts left behind from your previous jobs?

They’re called “orphan” 401k’s, and there’s a high likelihood that you may not be giving them the care and attention needed to maximize their potential.

You have three choices: You can leave them where they are, roll them into an IRA, or merge them with your current employer 401k.

The right answer depends on your situation. Generally speaking you have more freedom of choice with an IRA than with a 401k, because you are not restricted to the small number of funds offered by most corporate plans.

Let’s say you switched jobs, have a new 401k at your current job and an orphan 401k from your prior job.

Unless you think your old plan offered a great variety of choices, with low fees and other benefits, you’re probably better off rolling that right into an IRA.

There’s no tax penalty, and those funds will grow towards retirement alongside your new 401k contributions.

Step 5: Monitor and Stay Disciplined

Once you have gotten your accounts organized and aligned under holistic, goals-based investment strategies, it is important to monitor their performance and stick to the discipline outlined in each strategy.

Monitoring isn’t something you have to do every day, but you should certainly review portfolio performance each quarter when you get your statement.

Also, be sure to rebalance each allocation strategy, preferably quarterly, but at least once a year. Rebalancing keeps your portfolio in line with the target allocation weights that are right for that goal.

Again, an online portfolio management service like Jemstep.com can provide the tools you need to make this process easy and not overly time-consuming.

Jemstep.com is the leading online investment advisor that provides unbiased advise on how to best invest and manage your retirement portfolio across all your accounts, including your 401(k). Using patented technology and proven portfolio management methodologies, Jemstep tells users exactly what to buy and sell to make the most of their money taking into account, fees taxes and fund quality. J

emstep’s easy-to-use website takes the complexity, difficulty, and anxiety out of investing. Providing the high-caliber, personalized advice that has traditionally been available only to wealthy investors with assets greater than $5 million, Jemstep empowers all investors to take charge of their retirement planning and invest with confidence.

A Registered Investment Advisor with the SEC, Jemstep is led by a team of experts with over 100 years’ combined experience in financial management and technology innovation and development. Learn more at Jemstep.com.


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