Susan and her husband have been clients for over 4 years. We had met only once since then, so their financial checkup was long overdue! Their main issue was balancing their investments and evaluating their asset allocation. This blog entry will discuss how we balanced their investment portfolio. Most of their investments were in no-load mutual funds at places like Vanguard and Fidelity. This was my method of investing as well. As we started to analyze their investments, we first examined if there were any bad mutual funds they shouldn’t keep. I will discuss in greater detail how I determine if you should keep a mutual fund or not. There were a few underperforming mutual funds and we made a decision to sell them. Then we separated their investments into retirement and non-retirement (or taxable). This was done so we could look at time frames and tax consequences. Once we put all their investments into an asset allocation, we determined the following:
1) They had too much in Large-Cap. This is very common. We decided which to sell.
2) They had too little in Small-Cap or Mid-Cap. We decided which ones they should buy more of, especially for their 401(k) plans.
3) They had too many mutual funds. This could be exchanged by buying a Moderate Allocation mutual fund or a Target Retirement Date mutual fund.
4) They need to do a checkup more often than every four years! We made plans to check in 10 months – one year.
Website: Asset allocation tool: http://cgi.money.cnn.com/tools/assetallocwizard/assetallocwizard.html