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The zen of holistic investing


By the end of their careers, many people have multiple investment accounts. Often, we have an investment account with a brokerage firm, a 401(k) with our current employer, one or more IRAs, possibly including a SEP IRA, a SIMPLE IRA, and/or a ROTH IRA, as well as retirement accounts, such as a 401(k), that are still at a former employer.

Regardless of the number of accounts you have, to maximize your investment returns, it is important to manage all of your investment assets holistically. Holistic investment management requires an asset management plan that encompasses all of your investment accounts, including all of your retirement accounts as well as after tax investment account(s).

Only 27 percent of investors say that they look at all of their combined assets to come up with a master asset allocation plan. If you are in the 73 percent that don’t, here are some approaches that might make the holistic investment approach easier to implement.

1). Pick a discount brokerage firm such as Schwab, Vanguard, or Fidelity to be the custodian of all of your investment accounts. At the chosen discount brokerage house, open a taxable account, an IRA account and a ROTH IRA account for you and your spouse.

Once these accounts are opened, transfer your current after tax account(s) to the new account established at your discount brokerage firm. Into the newly established IRA and Roth IRA accounts, transfer any current IRA and Roth IRA accounts. If you still have retirement plan accounts at a former employer, call the former employer’s plan administrator and have the company retirement plan rolled over into your IRA or ROTH IRA account.

2) Once all of your after tax and retirement accounts are at your chosen discount brokerage firm, develop a master asset allocation plan that encompasses all of your accounts, including you and your spouses’ current employer’s 401(k) plans.

3) Since 401(k) plans have limited investments, choose the best available investments in your current employer’s 401(k) plan for the initial asset allocation.

4) Use the non-retirement taxable accounts and the tax deferred or tax free retirement accounts (IRAs and the ROTH IRAs) for the remainder of your asset allocation.

5) To minimize investment taxes, put the more tax efficient assets into your after tax (taxable) accounts. Tax efficient assets typically include growth assets where you anticipate long term capital gains, as well as assets that provide qualified dividend distributions. Put less tax efficient assets into your tax deferred (IRA)or tax free (ROTH IRA) accounts. Less tax efficient assets includes, higher yielding bond funds, REITs and other assets that generate interest or non-qualified dividend income.

6) Develop a process to analyze your combined portfolios and measure the combined portfolio performance. Do not be concerned if one account underperforms. With a holistic asset management approach, we are most interested in the total (after tax) return of your combined portfolio.

7). Contribute to your employer retirement plan the maximum amount that is matched by your employer. This matching amount provides an immediate investment return on the amount contributed. Once the employer match is met, examine your taxable income to determine whether additional funds should be put into your company’s retirement plan, your ROTH IRA or even your after tax investment fund.

8) Periodically, (at least annually) rebalance your total portfolio, assuring that your current asset allocation is consistent with your desired asset allocation.

For many people, this process is may be too complex or time-consuming to do on your own. If you are in the 73 percent of investors with no holistic investment plan, you may wish to get a fee-only investment adviser to help you consolidate your assets and provide you with a holistic investment approach.

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Wayne Farlow

Wayne Farlow is the founder of Financial Abundance, LLC, a Registered Investment Advisor firm.  He is a Certified Financial Planner (CFP®), focusing on Retirement Planning, Investment Management, Small Business Owner Planning and Sudden Wealth/Inheritance Planning.  His book, “Financial Abundance Guide,” is available free at www.farlowfinancial.com .  He can be reached at wayne@farlowfinancial.com or at 303-554-0309.

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