Anthea Perkinson, CFP
Anthea Perkinson, CFP, is founder of Monterey Associates, LLC, a fee-only planning firm in Pelham, New York, and a past president of the Financial Planning Association of New York. MontereyAssociates.com
When we look to improve or alter our financial lives, we instinctively add stuff. The result? An unwieldy mess of too many credit cards, accounts, bills, debts, investments and goals. Enough! It’s time to simplify your finances so you feel more in control of your spending, budgeting and investing. This will reduce your costs and allow you to react better to adverse events. Financial health comes about when our financial systems, however simple or complex, work for us and help us to build resilience and pursue opportunities over time.
Bottom Line Personal asked six top financial experts for the smartest ways to tidy up your personal finances…
Use only two stock funds to save for retirement. If you own multiple funds and exchange-traded funds (ETFs), your portfolio often mimics a broad index fund—only at much greater expense.
Simple solution: Consider putting 50% of your assets in a small-cap value stock ETF and 50% in an S&P 500 ETF. Not only do you get exposure to almost all of the US stock market, but from 1970 through 2021, this allocation returned an average of 12.7% versus 11.1% for the S&P 500 alone.
Recommended ETFs now: Vanguard S&P 500 Index ETF (VOO)…Avantis US Small Cap Value ETF (AVUV).
Set up an “All Asset, No Authority” (AANA) Portfolio if you are retired or a more conservative investor. We’re in a new economic environment now, and that makes it difficult to figure out what combination of stocks, bonds, funds and alternative investments to hold while keeping volatility solidly in check.
Simple solution: Spread your assets in equal amounts among the seven major asset classes—US large-company stocks…US small-company stocks…real estate…10-Year US Treasury notes…developed international stocks…commodities…and gold. Rebalance to your original allocation once a year. This portfolio has averaged a 10.2% return versus 10.7% for the S&P 500 from 1972 through the first seven months of 2022 but with about 40% less volatility. It provides relatively steady returns in most environments because you always own at least one asset class that is boosting overall performance.
Example of a seven-ETF AANA portfolio: Vanguard S&P 500 ETF (VOO)…iShares Russell 2000 ETF (IWM)…Vanguard Real Estate ETF (VNQ)… iShares 7-10 Year Treasury Bond ETF (IEF)…iShares MSCI EAFE ETF (EFA)…Invesco DB Commodity Tracking ETF (DBC)…SPDR Gold Shares (GLD). Average portfolio expense ratio: 0.29%. Year-to-date performance through August 15: –3.2% vs. –9.8% for the S&P 500.
Consolidate all or most of your financial accounts at one brokerage firm.
Simple solution: Roll over multiple IRAs and/or 401(k)s into a single IRA. Advantages…
Superior overview of your investments. You can more easily monitor your asset allocation, streamline portfolio rebalancing and create a tax strategy.
Less paperwork—important if you are older and worried about mild cognitive decline or are taking required minimum distributions from retirement accounts.
Peace of mind for your beneficiaries, who will have to handle your affairs in the event of your death or disability.
Lower fees. If you have a large amount of assets, you may qualify for discounts, premium services and bonuses.
But consider these caveats when you do consolidate…
Choose the brokerage firm with the most responsive customer service and shortest wait times. Most firms do a fine job of handling everyday operations. It’s when something goes wrong that you really need outstanding service.
Designate beneficiaries on retirement accounts you move to a new brokerage. Your old designations on those accounts do not automatically transfer.
Follow rollover rules when moving retirement accounts, and when transferring nonretirement brokerage accounts, you can avoid most taxes if you transfer assets “in kind.”
Set up quarterly and annual reminders for irregular bills and financial decisions. Many clients have established good systems to simplify paying recurring bills. What often falls through the cracks are bills and decisions that must be addressed intermittently. Examples: Estimated federal and state income tax payments…property taxes…selecting new employer insurance or Medicare supplemental insurance for the coming year…gifts for family and friends…tuition payments…and alerts for automatic renewal of subscriptions and memberships.
Simple solution: Google Calendar reminders will remind you at a designated time before an event starts. To create a reminder on your mobile device: Tap on your Google Calendar app. In the bottom right, tap the + sign then “Reminder.” Enter your reminder. Select a date and time for the alert. Tap “Save.”
Use a “retro” personal-finance app. There are hundreds of apps for mobile devices, but if you aren’t tech-oriented, they can be confusing.
Simple solution: Try these apps that mimic low-tech strategies…
For help saving: Albert tracks income, spending transactions and upcoming bills (much like printed check registers), then uses an algorithm to figure out how much you can put aside for savings. Cost: Free. Albert.com
For help budgeting: Mvelopes is an updated twist on the classic cash-envelope method. You can link your bank accounts to the app or manually enter your cash budget, then assign money to various “envelopes” for categories such as eating out. Cost: Starting at $6 per month. Mvelopes.com
For budgeting and coordinating finances with a partner: Qapital displays individual and shared finances. You decide how much info you want to share with your partner, from account balances to transaction history. Cost: Starting at $3 per month. Qapital.com
Attack one short-term goal at a time. Most people pursue too many goals at once, from reducing debt to saving for a vacation to saving for retirement.
Simple solution: Choose a goal that will reduce your financial stress and provide a sense of achievement, then allocate all available money to that goal. Example: One client decided to focus on eliminating her $6,000 worth of credit card debt over six months, but she did it in four. The accomplishment felt exhilarating, and then she allocated those monthly payments to the next goal—putting enough in her 401(k) plan to get the full match from her employer.
