The Experts: The One Move That Could Help Investors Simplify Their Finances

Manisha Thakor for the Wall St Journal writes: What is one move that could help investors simplify their portfolios and/or their financial affairs? The Wall Street Journal put this question to The Experts, an exclusive group of industry, academic and other thought leaders who engage in in-depth online discussions of topics from the print Report. This question relates to arecent article that discussed simple portfolios that consist of just three funds and formed the basis of a discussion in The Experts stream on Monday, July 8.

The Experts will discuss topics raised in this month's Investing in Funds & ETFs Report and other Wall Street Journal Reports. Find the finance Experts stream, watch recent interactive videos and explore a host of other exciting online content at WSJ.com/WealthReport.

Also be sure to watch investment adviser Tom Brakke(@researchpuzzler), blogger Mike Piper (@michaelrpiper) and University of California, Berkeley Professor Terrance Odean in an interactive video chat that aired on July 8 in which they discussed strategies for coping with market volatility.

Michael Kitces: Consolidate. If Not, Aggregate.

The easiest way to start simplifying your financial affairs is to just get everything gathered together in the first place—which is often no small feat in a world where investments are often scattered among multiple brokerage, retirement and bank accounts, each often split with multiple vendors. As we add new investments, and life and circumstances change, we have a tendency to create new accounts, but rarely take the time to get rid of the old ones; after enough years and decades, it can become quite a mess.

So the first step to simplification is to consolidate. In today's world of increasingly flexible financial services firms that can accommodate a wide range of accounts, there is often little reason to have multiple brokerage and retirement-account providers. In some cases, you can even use the same provider for your checking and savings accounts as well.

On the other hand, it isn't always possible to consolidate. Perhaps there is a unique investment that really does have to be held at a certain location. Perhaps your bank and brokerage accounts are at different providers, can't perform the services of the other, and you want to keep both. Perhaps there is a current retirement plan that just can't be moved while you're still working there.

For those scenarios, the next best option is to aggregate the financial information together, using one of the emerging crop of personal financial-management tools. The most popular by far is Mint, but there are several alternatives, as well. All give you the ability to log into one central dashboard and, after securely entering your login information once for your other sites, draw together the information to give you a simple report so you know where you stand. You can even pull in your credit card, mortgage, and other debts, as well, so you get a full picture of how leveraged your personal balance sheet really is.

So commit to spending an hour or two gathering everything together, and beginning the process of transferring it all to one centralized provider to the extent possible, and then set up an aggregation account to track the pieces that are left. It will make life much simpler.

Michael Kitces (@MichaelKitces) is director of research for Pinnacle Advisory Group Inc., and publisher of the financial planning industry blog Nerd's Eye View. You canconnect with him on Google+.

Terrance Odean: Stop Buying Individual Stocks

Going forward, don't buy individual stocks. Buy (and hold) a few well diversified, low-cost mutual funds (e.g., an all-U.S. equity index fund, an international equity index fund, a broad-based bond fund). Remember, look for low fees, don't chase past performance. If you currently hold high-fee funds, sell them and buy low-fee funds. Whether or not it makes sense to sell current individual stocks and buy funds depends upon how underdiversified you are and whether you are holding stocks for gains or losses. In general, sell your losers and sell winners for which you can offset capital gains. If the tax implications of selling your stocks are potentially large, consider getting some professional advice before taking action.

Terrance Odean is the Rudd Family Foundation professor and chairman of the finance group at the Haas School of Business at the University of California, Berkeley.

Michelle Perry Higgins: Don't Scatter Your Accounts

If I had to pick one way to simplify financial affairs, I would say consolidation of your accounts. Having multiple accounts, especially when they are at different banks, needlessly complicates things. For example, I have seen investors with four checking accounts and three savings accounts, all at different banks. This adds up to more statements, more tracking, more documentation and more stress. If an investor wasn't over the FDIC limit, I would question the need to have multiple accounts. My advice is that if you are under federal thresholds, think about combining your accounts to make life simpler.

Michelle Perry Higgins (@RetirementMPH) is a financial planner and principal at California Financial Advisors.

Charles Rotblut: Write Down Your Financial Plan

Write instructions on how you would want your financial affairs managed if you were suddenly unable to do so yourself (e.g. because of an accident or a severe illness).

Doing so serves two important functions. The first is that it forces you to think about how you are actually managing your finances. Are you doing so in a disciplined manner or do you lack a clear plan? Is your strategy simple enough to explain to another person or is it overly complicated? If you are like many investors, writing down directions for managing your portfolio will reveal weaknesses in your current process. It also gives you the opportunity to correct them, as well as a disciplined process to follow going forward.

The second function is that it allows someone you trust to step in on your behalf. Your spouse, your significant other, your son or your adviser will be able to promptly step in and manage your affairs. By empowering them with clear instructions, you give yourself peace of mind that your affairs will be properly managed.

Charles Rotblut (@charlesrotblut) is a vice president with the American Association of Individual Investors.

Matt Hougan: The Less You Work, the Better Off You Are

Do less.

Investing is awesome. It's one of the few places in life where, the less you work, the better off you are.

Imagine if that were true at your job? Or with your kids? Or working out? We'd be doing cartwheels.

But with investing, it's absolutely true…and yet we spend so much time and money pretending it isn't.

Every study shows: If you study the market in-depth, watch charts on six different screens, and go chasing after the latest hot manager, you're almost guaranteed to underperform. If you buy simple, low-cost mutual funds, and rebalance once per year, you'll outperform the vast majority of investors.

Want some advice? Buy one global total market equity index fund. Buy another total market bond index fund. Rebalance.

Spend the time and money you save at the gym.

Matt Hougan (@Matt_Hougan) is president of ETF analytics and global head of editorial for IndexUniverse LLC.

Rick Ferri: It's as Easy as Cake

Creating a portfolio is like baking a cake. Selecting the right ingredients, using the right amount and baking it for the right time at the right temperature results in a tasty treat. The recipe for a good portfolio is the same. Start with the three essential ingredients: A total bond market index fund, total U.S. stock market index fund and total international stock index fund. How these three funds are blended together will determine the portfolio's "temperature" or level of risk. Next, hold the portfolio for an appropriate time based on your needs. Don't take it out of the oven too soon! This makes for a winning portfolio.

After that, it's all icing on the cake. You can also add a little flavoring using a real estate index fund (REITs) or a small-cap value index fund if you wish. See The Total Economy Portfolio for more information.

Rick Ferri is founder of Portfolio Solutions LLC and the author of six books on low-cost index fund and ETF investing. His blog is RickFerri.com.

Eleanor Blayney: The Best Plan Is to Have One

Make an investment plan, stick to the plan, and rebalance to the plan.

Just think what these three steps (really one) could eliminate:

• Worry about where the market is or where it's going (a good plan will build in market risk);

• Indecision about where to invest extra cash or savings, or where to find funds for life events (the plan's asset allocation will have the answer); and

• Impulsive and usually costly behavior, such as buying hot and selling cold (your plan will have parameters for when to buy or sell).

In other words, a properly prepared investment plan can save you time, money and ulcers.

Eleanor Blayney (@EleanorBlayney) is consumer advocate of the Certified Financial Planner Board of Standards.

Christian Magoon: Know What You're Aiming For

Imagine trying to plan a vacation but not knowing how long you are staying or what your budget is. Most of us wouldn't even attempt to make plans without those numbers, but too often investors are doing just that when investing. The generic investment goals of "college savings" or "retirement" are being made every day. These goals aren't specific enough to be measured properly, thus making portfolio assessments and decisions much harder. Investors need specific investment goals that have numbers representing time and money at minimum. In the context of these numbers, many investment decisions will become less complicated.

Christian Magoon (@ChristianMagoon) is founder and chief executive of YieldShares, an income-focused ETF sponsor.

Sheryl Garrett: Two Crucial Moves

Consolidate and automate! OK, that is two moves. Consolidate any and all investment accounts, excluding retirement plans with your current employer, with one discount brokerage firm. Next, automate all of your monthly savings and investments and the payment of your regular expenses. I like to have my monthly savings and investments withdrawn directly from my paycheck before it's automatically deposited into my checking account. From there my mortgage payment, taxes, insurance, and many utilities are automatically deducted each month. Then, whatever is left over is mine to spend as I see fit.

Sheryl Garrett (@SherylGarrett) is founder of the Garrett Planning Network Inc.

Tom Brakke: Rein in Stray Accounts

If you have stray accounts here and there—old brokerage accounts, 401(k) plans from previous jobs, etc.—you should investigate whether there are valid reasons to keep them open. That includes looking at the investments within the context of your overall holdings, but also considering the fees that are being charged on those accounts and the extra time you have to spend keeping track of them.

It might seem like there are diversification benefits from having your assets located in multiple places. That may be true in some situations, but often those extra accounts aren't providing any diversification, just hassles.

Tom Brakke (@researchpuzzler) is a consultant, writer and investment adviser who specializes in the analysis of investment decision making and the communication of investment ideas.

George Papadopoulos: Simple Is Always Better for Long-Term Results

It is difficult to choose just one move that could help investors simplify their portfolios and/or financial affairs as it is usually a combination of small moves that can achieve this. Having said that, if there was one move I usually recommend, it is the consolidation of financial accounts. Clients usually come to us with too many open accounts in different institutions and the amount of paper (and/or emails) generated is a frequent contributor to wasted time and stress. I often recommend having one checking account set up for direct deposit and paying bills, one savings account to hold the emergency cash fund and short-term goal savings and one brokerage company to hold all investment accounts. These accounts are linked online and the goal is to not have more than enough cash necessary sitting in the checking account, while easily funding the savings and the investment accounts regularly (preferably monthly). Please avoid adding more layers in your finances. You don't need XYZ hedge fund, nontraded REIT, master limited partnership etc. no matter how fantastic they sound. Simple is always better for long-term results because you will understand it and you will spend much less time handling and worrying about it. And you will sure spend less in fees for that investment manager to take shots with your money with his/her "proprietary" investment strategies.

George Papadopoulos (@feeonlyplanner) is a fee-only wealth manager in Novi, Mich., serving affluent individuals and families.

Manisha Thakor: Set the Right Asset Allocation

When it comes to investing, time and again academic studies have shown that asset allocation trumps security selection in terms of what contributes the most to your long-run returns. Given this evidence, I believe the single most important move that an investor can make is to set—and execute on—the right asset allocation for his or her specific situation.

If unsure what your target asset allocation should be with your long-term investment funds, a simple rule of thumb popularized by the legendary John Bogle is to put your age in bonds and the remainder in stocks. If you are 50 years old, this means with your five- or 10-year-plus funds (NOT your emergency funds) you would put 50% in bonds and 50% in stocks. To me, the simplest way to execute on that allocation is through the use of low-cost index or "passive" mutual funds, such as those offered by Vanguard or Dimensional Fund Advisors or related low-cost ETFs.

While this may sound incredibly basic, I find that most people are unsure of the three most important factors when it comes to their investments: their asset allocation, their fees and how their current portfolio balance relates to their long-term goals. Spending some time with a qualified adviser (ideally one held to a fiduciary, versus a suitability, standard) to identify and implement the right asset allocation—and learn about the other two factors—is one move that can really help simplify your portfolio and your financial affairs.