One of the principles of a blog is that it’s supposed to be regular and I mostly get that, but phew! the last few weeks. First, there was the college drop off of my dearest beloved child (and the shoveling out of the remains of her room), the usual medical and veterinary crises, and a conference or two, mixed in with just about everyone in Northern Illinois deciding to finally get their financial life in order and call me (which I am definitely NOT complaining about). It’s been a busy few weeks. But in between time I watched the political conventions and now I, like everyone else, think I could do better on policy. At least in one area.
To be honest, I didn’t watch the one (very much) that featured Scarecrow and the Tin Man, but I had to tune in to watch Bill Clinton work that old black magic. He’s getting pretty grey now, but honestly he’s the only man who has ever held the job that I can actually imagine anyone ever wanting to date. Barack looks like excellent husband material, but if you really want to get in trouble on a Saturday night, Bill was certainly the go-to guy. But I digress. What this post is actually about is asset allocation. Lost you right there? Wait!
Because it’s now or not-until-next year for their 401ks, most people who have called me lately want to talk about what investments they actually should have selected instead of that target fund they picked when they couldn’t decipher the other offerings. If all you have is the 401k, the target fund may not be such a bad choice. But no, 99.99% of people I work with have a bigger coin collection.
You’ve probably got a 401k (or two, or three, depending on how many jobs you’ve held). Maybe you taught or worked for a non-profit, so a 403b is lurking around somewhere. In a burst of frugality, I’ll bet you opened (and maybe continued to add to) an IRA, maybe a Roth, and if you had a side gig or self-employment, you probably collected money in a SEP-IRA. If your income increased over the years, you’re probably not allowed to add to some of these any more, and you might also have a plain old mutual fund account or brokerage that our beloved IRS is happy to collect taxes on. So when I see all the internet advice on “proper asset allocation” and “tax-smart investing”, I realize it’s just about as much a fantasy for most of us as keeping our houses clean, our dresser drawers neat, and our dogs brushed.
I spent about 7.5 hours yesterday trying to sort out a client’s accounts and move around the large collection of investments to a coherent plan they could manage, understand, and withdraw from. If I’d have actually billed them for the amount of time it took, at least one of them would have croaked and I’d be talking to the remaining one about settling the estate. And when I present these things, the client’s eyes just glaze over. Sure you can simplify, dear client, but that probably means cutting down your 15 or 16 accounts to 8. One solution, of course, is that they sign up for professional ongoing management, but they’re trying to be frugal and handle it, and I support that and really want to help. Truth is, it’s hard and it took me a good long time to learn to do asset allocation properly—and I began investing 30 years ago and the books I’ve studied on the topic are bending several shelves in my bookcase.
I have another solution, and it’s political. Why can’t we just have national retirement accounts? You get one—if you have a generous employer, they can match your contribution. If you make under $X, your contributions are deductible, otherwise, no. If you’re self employed, maybe you get to contribute a little more. You choose the investments and where to house the account. There’s a default option (maybe a target fund) and a default deduction (if employed). All these different programs, deductible, non-deductible, different income thresholds, different contribution limits, rollovers—well, it’s just plain crazy. Maybe accountants and financial planners get plenty of business out of this, but it’s crazy making for the investor.
With my idea (which admittedly needs flesh on the bones) many middle to moderately affluent citizens (maybe even the rich guys, though Mitt would find a way to beat it) would end up with one, maybe two accounts: retirement and maybe regular investing/savings/brokerage. So much easier to get reasonable diversity without trying to spread out choices among seven or eight accounts. You might actually be able to see what you have. You wouldn’t lose track of it when you changed jobs, or be tempted to cash in the seemingly small sum (no. no. no.) And when retirement comes, you could have a rational withdrawal plan that would be manageable as you age.
Now, I’m not trying to privatize social security (omigod people can’t even invest decently under the system we have. What a nightmare.) or advocating a flat tax because then I’d probably have gone over to the dark side, er, become a Republican. But isn’t there anyone in at least one of the parties that could think a little bit about coming up with a streamlined way for most of us who want to save for retirement to actually do that without using up most of our precious remaining grey cells?
Until that happens, I’m here to help. It ain’t easy and you’re not dumb if it isn’t crystal clear on the first run-through. Maybe after the dust settles, retirement savings could get some attention? After we get done worrying about where Barack was born.
