Investment Account Spring Cleaning

Michael Gennawey, CRPC |

Winter is finally over and we all can look forward to renewed growth in our gardens and some warmer weather. Spring cleaning has long been considered a ritual for your home but do not overlook your finances as well. Here are the top 5 spring cleaning tips specifically for your investment accounts.

  1. Clean the windows. Seeing clearly is critical for good investing. Make sure your investment holdings match up to your financial goals. 2020 was a much better year for growth investments versus value investments. For example, the Russell 1000 Growth Index* was up +37.8% but the Russell 1000 Value Index* was up 2.7% for the year. Now is a good time to take a look and see if your portfolio has shifted away from its baseline allocation. Rebalance your funds so that you are back in line with your core objectives, usually an income or growth focus. At the same time be mindful that rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

  2. Take your excess goods to the Salvation Army. Has your portfolio gone from a few investments into a few dozen? Review your holdings and examine if they are really helping you reach your financial goals. Sometimes even the most disciplined investors can get sidetracked by speculative investments that we hear about on TV and Twitter. Those can be quality investments but just make sure they are taking an appropriate percentage of space in your investment accounts.

  3. Tidy up each room. With many of us spending more time at home it is easy for each room to be a place to eat, to sleep, to workout, etc... Cleaning up and putting everything back in the right place is a typical Spring cleaning exercise that your portfolios needs as well. Some investments work better in a tax shelter like an IRA, some may be best suited for a Roth IRA or even a taxable account. Make sure that your investments are located in the best accounts for their intended purpose. For example, many investors who have high income like to place their dividends investments in Traditional IRAs (Individual Retirement Accounts) to shelter the additional cash flow from current income taxation. Additionally, contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 1⁄2 may result in a 10% IRS penalty tax in addition to current income tax. In other cases investors will use municipal bonds from their state of residency for tax free income. Municipal bonds are federally tax- free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.

  1. Water your garden. One of the best disciplines you can have as an investor is to be a great saver. The best way to be rewarded for being a great saver is to consistently ‘water your plants’ by setting up an automatic investment plan. Making sure your excess long-term savings are going into your tax shelters and investment accounts will position your investment accounts for grow potential. You can start small ($50-$100 a month) and gradually do more as you can. The long-term effects of being a consistent contributor to your investment holdings will likely produce higher balances in the future.

  2. Change the batteries in your smoke detectors. Sometimes our housekeeping tasks are intended to protect the ones we love. In a financial sense that is making sure that your investment accounts have your beneficiaries listed properly. At SoCal Wealth Management we can easily update your beneficiaries but don’t forget about your 401(k) at work and any life insurance policies you set up along the way. This may be one of the more time consuming housekeeping items but potentially the most important for your family.

And just one last tip, you do not need to wait until spring to do investment account maintenance like this. Talk to one the LPL Financial Advisors at SoCal Wealth Management anytime during the year. We are conveniently located at CU SoCal Branches (or anywhere by virtual meeting!) to help you get your house in order.


*The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. All indices are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.

**The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax orlegal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.