Buzz
When planning for retirement, as we’ve discussed previously, simplicity is often the key to success. The first step to more efficient investing is to simplify your portfolio.
“With fewer assets to keep track of, you can focus on the most important aspects, like asset allocation and ensuring you’re on track to meet your financial objectives,” writes Christine Benz, Morningstar’s Director of Personal Finance.
Here are Benz’s recommendations for streamlining your portfolio.
Consolidate your accounts
If you’ve changed jobs or have multiple separate accounts, consolidating them can not only help you keep track of your money, but also reduce fees and save you time from choosing different investments for each account.
“You can roll over old 401(k) funds and smaller IRAs into one large IRA in your name,” explains Benz. While you may be able to transfer old 401(k)s into your current 401(k) if offered, IRAs generally provide better investment options and potentially lower fees. Be sure to consider these factors before rolling over your accounts. Here’s how to do so.
Invest in total market index funds
If you're investing in total market funds—mutual funds that represent a broad stock market index—you don’t need to pick many. A U.S. market fund, an international fund, and a bond fund are usually sufficient.
“These funds are typically low-cost and make it simple to track your portfolio’s asset allocation,” writes Benz. “They’re often tax-efficient as well.”
If these funds dominate your portfolio, you are also reducing costs by making other investment types (such as sector funds, style-specific funds, or region-specific holdings) “redundant,” writes Benz. This simplifies things and alleviates some of the pressure on you as the investor.
Increase your cash holdings
Finally, consider your cash options, advises Benz to Money.com. Using your brokerage’s default cash holdings may not be the most profitable choice.
“Instead, explore online savings accounts,” suggests Money. “Recent interest rate hikes and intense competition to attract new customers have sparked a pricing war among major online banks.”
You can find online accounts offering savings rates as high as 2.25 percent (check out the highest rates here). Certificates of Deposit (CDs) may also be an option, depending on your needs.
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