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I have 3 IRAs with 3 different firms, invested in 30+ stock funds. Would consolidation be a good move or will fees hurt?

The IRAs are rollovers and self-directed. Fidelity, Pershing and JP Morgan. My concern is management fees and not fully understanding the impact on so many funds when I retire. They've been on autopilot for years and now I need to pay attention. Since I have no advisors I have held rather than traded. Are there any moves to make now to minimize the impact? I'm 7 years from retirement.

Mar 08, 2014 by Reed from Marietta, GA in  |  Flag
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8 votes

Reed, good job holding on through the recession! Now is the time to consolidate to create a globally diversified, low cost portfolio. If designed right, it may more than offset any management fee. Keep up the good work!

Comment   |  Flag   |  Mar 08, 2014 from Denver, CO

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6 votes

Hello Reed,

It is certainly a good idea for you to review your portfolio at this point in time. Consolidating your accounts into one IRA will make it easier for you to track your overall portfolio to ensure it is properly diversified and that the overall portfolio fund expense ratios are minimal. You will likely suffer a small IRA account termination fee at the 2 losing brokerages. These fees run from $25 to $100.

With 7 years to go to retirement you really should have an Investment Plan in place. The purpose of investing is to generate enough portfolio growth so that you can safely withdraw from your investment funds in retirement without fear of outliving those funds. Your plan would consider the gap between any guaranteed retirement income such as social security and pensions and spending to maintain your desired standard of living. Once the gap is calculated you have to realize that it will grow over time due to inflation. The portfolio must be structured to not only close the gap in your first year of retirement but future years as the gap widens.

The best thing to do is to hire a fee-only advisor to prepare an Investment Plan for you. I suggest fee-only because they will be conflict free. When they suggest an investment it will be because they feel it is the right investment for you. Not because of the compensation they will receive from it.

Feel free to reach out to me if you would like further information.

Comment   |  Flag   |  Mar 08, 2014 from Woodbridge, VA

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4 votes

Reed,

I think anytime you can consolidate your investments and number of various accounts down in to one managed IRA account makes investing and monitoring your funds so much easier. Today's technology when used by a fee-based adviser can provide you with better global diversification, lower the costs of investing, control any tax ramifications (RMD and Roth Conversions), reduce interest rate risks and hedge against inflation.

I understand your seven years from retirement and having an active adviser to guide you and protect your family is a must in today's complex financial marketplace. I think active management and advice will have a cost but the benefits of that advice will create a better globally diversified portfolio, generate you better long-term risk adjusted returns and peace of mind. Look for a fee-based adviser not a stock broker today! Enjoy your retirement!

Comment   |  Flag   |  Mar 08, 2014 from Milwaukee, WI

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3 votes
Rich Winer Level 20

Sounds to me like you have a lot of puzzle pieces (aka your 30+ stock funds) and no idea how they all fit together into your overall financial picture. As others have suggested, a good financial advisor will discuss your financial goals, risk tolerance, time horizon and other financial issues (like making sure your income and lifestyle are protected with adequate insurance). Then, he or she can help evaluate what you own and determine what changes should be made to help you organize your financial affairs and meet your financial goals.

Unless you are implementing different investment strategies in different accounts or a certain account is earmarked for a certain goal at a specific time, it's generally best to simplify your life by consolidating your investments into as few accounts as possible. What you have now sounds like chaos, and it's very common.

Find a good financial advisor in your local area, simplify your life and give yourself some peace of mind.

Comment   |  Flag   |  Mar 08, 2014 from Woodland Hills, CA

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3 votes

My personal bias is to simplify as much as possible. That would argue for consolidating your accounts into a single IRA. Fees are important but don't let that be a "tail wagging the dog" sort of issue for you. The fees you are concerned about are primarily those imbedded in each mutual fund you own. Since those are typically a percent of money in the fund, it doesn't add or detract from ongoing fees that you own multiple funds. However, it would make sense to know what each fund is charging and use that as a part of your screening process to have lower overall fees. But that can happen in one or three IRA's. That's not the biggest issue for you in my opinion.

It's far more important that you make an appropriate decision on the overall asset allocation for your funds and have a strategy that makes sense to and for you, and that you are committed to using through the inevitable market swings you'll encounter in the coming years. It's also important to at least do some basic screening up front and ongoing of the funds and managers you're using. The fewer funds you have to research the more realistic it is you'll do so. So, yes do consolidate, unless.... (there are always exceptions...)

For example - we don't know your age. If you "retire" before you are 59 1/2 then you might have a good reason to keep accounts separate to allow you to use some early withdrawal strategies that avoid the 10% penalty feature on IRA's. Having the balances split up can be advantageous in some situations because the early withdrawal strategy can be applied to a piece of the money, rather than the total amount. Another example would be as Rich mentioned, if you wanted to use different investment strategies on one account vs. another or if you wanted to see how one Adviser might perform vs. another, you might keep more than one account.

Conclusion - if you'll be older than 59 1/2 in 7 years, and you don't have anything special in mind for running multiple investment strategies you should consolidate and make life simpler. :)

Comment   |  Flag   |  Mar 09, 2014 from Georgetown, TX

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3 votes
Jim Hyre, CFP® Level 7

Reed,

You are certainly asking the right questions. In general, consolidation makes good sense, if for nothing else, to make it easier to manage your investments. Trying to stay on top of 30+ holdings would be quite time consuming, which is likely not how you want to spend your time now, or in retirement! Consolidating will also help you stay on top of the fund management costs.

One thing that concerns me however is your statement about having been on autopilot for years. I like the fact that you recognize the need to start paying closer attention to your portfolio. My concern however is that it appears that you don’t have a financial plan in place to help direct your decisions with your investments. A financial plan can help you answer questions about how dependent your retirement needs will be on your IRAs. Knowing this can help direct your overall investment decisions. How much risk do you need to take with your investments to achieve your goals? What mix of investments will achieve the returns necessary to fund your retirement goals?

Working with a professional advisor, even if only to produce a financial plan, would benefit you greatly. Just remember, you only get one chance in life to get your retirement right. Enlisting the help of a professional can help you make good decisions for yourself not only over the next 7 years, but for the rest of your life.

All the best in you retirement.

Jim

Comment   |  Flag   |  Mar 18, 2014 from Columbus, OH

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2 votes

Consolidating them is a good idea. I personally like Fidelity's platform so I would consolidate there. Between the 30 funds you hold there is probably a ton of overlap and duplication of stock positions. I would also recommend dropping the number of account holdings to between 6-8 low cost index Exchange Traded Funds (ETF's).

Comment   |  Flag   |  Mar 09, 2014 from Canton, GA

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Reed, While you may be benefiting from 3 different perspectives, and the possibility of diversification, I also believe that you would be better served with a thorough, concise plan moving forward based on your goals and needs. Stating specific funds or courses of action without knowing your personal situation would be wrong in my opinion. Not only do we not know what your current holdings are, the current level of diversification, or not and risk tolerance makes making anything more than a general answer really absurd. So, find someone to work with, discuss everything and then find that one place you are comfortable. I hope that helps. Have a great week.

Comment   |  Flag   |  Mar 19, 2014 from Bloomingdale, IL

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1 vote

Reed, you should consolidate your accounts. Though there may be some termination fees, there are also probably an annual maintenance fees on all the accounts. So, in direct answer to your question, consolidating accounts, over a few years, will actually help fees.

The only move you need to make is try to educate yourself. Try to get an understanding of what your risk tolerance is, and basic structures of a portfolio. Don’t expect to get really good at this after a few weeks or a few months. But you can develop your own investment style.

You could do it alone as you have been doing. But I would recommend you find a good financial advisor, preferably a CFP® in your area. Seek referrals from trusted friends, neighbors, relatives, and co-workers. By retaining a good financial advisor, I believe you will gain from the guidance, and have a stronger understanding of your goals.

By educating yourself and developing an idea of what feels right for you as far as an investment style, you will be able to select a financial advisor that communicates to you on a level that you understand.

Comment   |  Flag   |  Mar 25, 2014 from Delray Beach, FL

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0 votes

Hello Reed,

I agree with the consolidation focus of my colleagues and won't duplicate what they've already covered.

But I'd like to respond to the question that you DIDN'T ask...and that's regarding your asset allocation in the current market environment, especially since you're only seven years from retirement.

You mentioned that your 30+ stock funds in the three IRAs have kind of been on auto-pilot. So you have a pretty good idea of how it feels to go through a market stock correction like we had 2007-2009.

My question is...if you decide to consolidate but still keep the assets in stock funds, are you comfortable with the very real possibility of another significant stock market correction between now and when you retire in seven years? Or put another way, how do you feel about the very real prospect of earning low single digit average returns (1%-3% for example) in stocks over the next 7-10 years, as you approach retirement's doorstep?

We become conditioned to think that good returns in the investment markets are almost always there to be had. But what about when the prices of those investments are well above historically sustainable levels, like they are now.

The US stock market has been on a tear for five years with very little in the way of normal, healthy pullbacks. Corporate profits are well above their normal trend. By several measures, global growth appears to be slowing. Both bulls and bears can trot out their "reasons" for why the market must do this or that.

Can the stock market continue to climb from here? Certainly. But through decades of market history, when stocks are at their current valuation levels average returns tend to be very low over the next 7-10 years. My own view is that future returns in stocks have been "pulled into the present."

Even bonds and real estate investment trusts (REITs) are susceptible at current levels. Bonds of various types have been in a long-term bull market, with interest rates in decline over about 30 years. That doesn't mean that interest rates will immediately begin a rapid climb. But it does mean that current yields are historically low and, when interest rates do start climbing in earnest bond principal will get hit.

So what's an investor to do?

I'd encourage anyone in your position to consider locking in at least some of the gains you (must) currently have in the stock funds and reallocating a healthy portion to cash and/or short-term bond funds. That could help buoy your portfolio in the event of another downturn, plus it could serve as "dry powder" for buying back into good investments at better prices than today. (Of course, if you have other such stable savings and investments that you didn't mention, then maybe you've already got the bases covered.)

Many advisors will bad-mouth that idea as "market timing." And it's true that nobody can precisely and consistently time the markets. But thankfully, investment success doesn't depend on having precise timing. Investors who can largely avoid catastrophic losses while capturing modest gains tend to do quite well over the long haul--and that's an especially important approach for retirees and pre-retirees.

Hope that helps.

Comment   |  Flag   |  Mar 19, 2014 from Clackamas, OR

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