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Are all your assets working for you?

Determine your goals. This is not always as easy as it sounds. Are you saving and investing for a comfortable retirement, a new home, or college tuition for your kids? Write your goals down and rank them, with the time frame to reach each of them.

Utilize asset allocation models. Now you can focus on the way you divide your money among asset classes – stocks, bonds, cash equivalents, real estate, etc. – managing risk throughout your investments, so under-performing investments may be balanced by others that are gaining higher returns.

Your personal asset allocation strategy will depend on your goals, time frame and risk tolerance. Remember to examine the assets in all of your investment accounts rather than focusing on the mix in each specific account. For example, if your employer-sponsored retirement plan account is heavily weighted in stock funds, you might want to consider balancing your overall investment risk by investing in bonds or money market funds outside your retirement plan account.

Coordinate finances with your spouse. If you’ve crossed the threshold into married life, consider coordinating your asset allocation decisions with those of your spouse. Review the investment options that you and your spouse have, and make sure you understand the potential risks and rewards of each. For example, if your spouse has markedly different retirement plan choices than yours, try to choose the most attractive options from each plan in light of an overall asset allocation strategy.

You’ll also want to look at what types of assets you each currently own. Allocating assets between two different portfolios can be complex, so consult a financial advisor for advice.

Consider a consolidation strategy. By going through the asset allocation process, you may discover investments that overlap without providing additional value.

Know the tax advantages of your accounts. Tax planning with the help of a tax advisor is critical for developing a comprehensive financial plan and may help you distribute investments between taxable and tax-deferred accounts. In general, consider putting less tax-efficient investments (such as high-dividend stocks or mutual funds) in your tax-deferred retirement accounts and reserve tax-efficient investments (such as low-turnover mutual funds or municipal bonds) for your taxable investment accounts.

Tax-deferred earnings and contributions aren’t taxed until withdrawn. Amounts withdrawn prior to age 59-1/2 may also be subjected to a 10 percent early withdrawal penalty.

Work with a professional. To gain perspective on your financial future, consider working with a knowledgeable financial advisor, who can conduct the analysis to develop a financial plan tailored to help meet your goals.

April 5, 2001

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