Spring Cleaning Your Investment Plan

The goals and processes in the financial plan are a crucial part of determining when to rebalance based on things other than market performance. As an employee’s life changes, so too should the method in which they carry through on their goals.

Just like you probably don’t need the fifth set of towels in the guest bathroom, employees may be holding onto investments or savings processes that are no longer needed. So how can plan sponsors help their employees spring clean their investment plan?

The first step may be in recognizing that Spring Cleaning is necessary at all. Plan sponsors can start by bringing employees’ attention to the fact that evaluating their investment and financial plans regularly is important. It may also be helpful for plan sponsors to help employees know that evaluating doesn’t have to be overwhelming. Some sponsors may want to create a generic checklist of items. Other sponsors may want to create classes or workshops on specific items. The decision between the two will involve your work culture. For example, in health care settings, checklists may be familiar. In other settings, checklists can generate eye rolling and disengagement among employees.

Next, the key may be to address the investment portfolio first, as a portfolio. In this case, portfolio means a collection of varied assets. Financial advisors counsel that investors look for the stocks or funds that are underperforming. In finding the weak spots, looking for merely those who have lost value isn’t sufficient. Instead, advisors suggest that investors look for those stocks or funds that haven’t gained the value they were expected to over a specific period of time such as a year or five years.  This may also mean to take a hard look at the stocks and funds an investor has that are out performing their expectations by too much of a margin. Any stock that is too highly valued could be volatile, say those advisors and could lead to putting the investor in more of a risk position than is appropriate. They also suggest looking for a bias in how investors are choosing stocks. Too many growth stocks? Too many value-based or dividend stocks? The two sometimes perform differently in different markets, so ensuring a mix could be beneficial where appropriate.

Third, plan sponsors should encourage their employees to organize both their record keeping and their record collecting process.Employees should make sure they have a system for collecting records, whether in paper or electronically. Once employees know that they have a consistent system for storing records, they should make sure they have a system for getting rid of records they don’t need any more. That may include removing records that are beyond a certain time period.

Employees should also ensure that they are reviewing the documents that relate to their investments and their other financial documents, such as bank statements and credit reporting. Financial experts suggest employees look for “financial clutter”, a term that refers to multiple accounts or multiple 401(k) or rollover accounts. These accounts, for some investors, should be streamlined by rolling over to a consolidated individual retirement account.

Fourth, examining whether the financial plans that an employee uses are still validis also a solid part of Spring Cleaning. This may also mean encouraging employees to have a financial plan. The goals and processes in that plan are a crucial part of determining when to rebalance based on things other than market performance. As an employee’s life changes, so too should the method in which they carry through on their goals. For example, while plans for having children may have been factored into the original financial plan, plans for having twins (and the upfront cost of double everything) may have not. This also goes for a spouse’s career change due to a change in the industry or other unforeseen and uncontrollable events.

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