Include financial affairs in your spring cleaning

April 19, 1992|By Jonathan Lansner | Jonathan Lansner,Orange County Register

Spring. Taxes. Baseball. Dashed hopes of living up to New Year's resolutions. It may be the perfect time to check up on your finances.

In recent weeks many savers have had to find receipts of 1991's income before shipping the shoe box to the accountant or tax preparer. So at least springtime is a time when financial figures are floating around a household.

According to the experts, that makes this time of year -- rather than the traditional January surge in goal making -- an excellent opportunity to do a thorough financial housecleaning.

With that in mind, here's what some financial professionals suggest:

* Check your asset allocation:

You can't do much without a correct picture of your wealth, says John Butler of Financial Funds in Denver. Add up everything -- from the value of the 401(k) plan at work to the annuity you bought five years ago to the emergency fund at the credit union. Even the equity (be reasonable) in your home. Then break down those figure into asset classes: stocks, bonds, cash, real estate, metals, etc. Consider what mix you'd be happy with, and if you can, make some modest, deliberate changes.

"Every time I do my own, I find I have too much cash," Mr. Butler says.

* Examine your diversification: One sane way to invest is to own a little bit of everything. Of course, that means that you won't be able to say that every stock, bond or fund you own is trading near all-time highs. But unless you're a brilliant market timer, a collection of all star-studded investments may eventually crash and burn. Financial experts advise savers to have some defensive positions, investments that often look out of favor at times.

"A portfolio should react [positively] to no matter what happens in the economy," said Leon Colafrancesco of Seamont Advisors in Newport Beach, Calif.

* Scan your losses: Just because a investment has great potential doesn't guarantee a profit. And one thing experts agree on is that most people find it hard to sell their losers or often sell at the wrong time. Perhaps an investment spring cleaning should include the sale of some investments that have gone south. Why wait for December when tax-driven selling pressure will only push them lower?

"There are times when cutting your losses and moving your funds to a better investment makes the best sense," said Bjorn Erik Borgen of Founders Funds in Denver.

* Cut expensive debt: Eliminating expensive credit card interest charges makes good money-management sense. But it also looks like a savvy investment move in today's low-interest-rate climate that has been so frustrating to yield-conscious savers.

Look at this example by Murriel Coleman of IDS Financial Services in Irvine, Calif.: $100 of credit card debt at 18.66 percent (about average these days) costs $18.66 a year in

interest. With card debt no longer deductible, to earn that much after state and federal taxes a saver would have to find an investment returning 28.2 percent a year.

"Getting anything like that would require taking enormous risks," Mr. Coleman said.

* Examine risk: Stocks have historically enjoyed a large performance advantage (12.9 percent average a year since 1941) over bonds (5.2 percent) or cash (4.5 percent). Yet many investors still don't like the stock market's volatility. In long-term savings plans for retirement or college education, a saver has time as an ally to smooth out stock fluctuations, experts say.

"Investing 100 percent of your portfolio in common stocks may be overly aggressive for some. . . . But younger investors with Cdiversified portfolios, and those with retirement accounts like 401 (k)s can afford to be a little more aggressive," John Connallon of Shearson Lehman Bros. in New York said.

* Give funds a tuneup: Whether buying mutual funds through a broker or on your own, a $55 trial subscription to the Morningstar fund-tracking service -- call (800) 876-5005 -- will help you get a grip on the often-confusing fund picture. The trial includes a loose-leaf notebook full of Morningstar reviews of more than 2,000 major funds (each a full page, detailed write-up including its well-known up-to-five-star rankings) plus three months of updates. It's what experts from major brokerages and financial planners use in their decision making.

"It gives you a good sense what a fund's about -- something you likely won't get out of a prospectus," said Paul Merriman of the Merriman Funds in Seattle.

* Municipal bond review: Look at your tax picture: Do you have a large enough tax bill to justify owning tax-free municipal bonds? One in six tax-free investment holders would be better in taxable investments, IRS statistics show. Also, there's risk in munis. The bonds have performed well, and new tax laws make them a rare shelter in the tax-avoidance game. But some experts note that state and local government budgetary problems may continue -- bad news for muni holders.

"If you're iffy about a muni, get rid of it," said Marilyn Cohen of Capital Insight in Beverly Hills.

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