Get Your Ducks In A Row

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To create a successful investment plan, coordinate your assets. Review each asset in your portfolio and determine if they meet your financial goals, strategic planning will set you up for success.

DucksChartYou graduated from your EM residency more than 10 years ago. You switched jobs a few times. Sometimes you were an employee and other times an independent contractor. You got married and your spouse also had a few different jobs along the way. Now you have kids and don’t have much time to manage your finances. But you read my article last month in EP Monthly and decided take an inventory of your investment portfolio, which might look like the chart to the right.

Now you realize that instead of having an investment plan you have investment chaos. Here’s how you turn the chaos into harmony:


Step #1: Determine your asset allocation
A big mistake I’ve seen many physicians and financial advisors make is that they don’t create a unified asset allocation across all of their accounts. Instead each account has a separate allocation. In the end only the overall asset allocation of the portfolio matters not what each account is doing.

Step #2: List all accounts you own by type of account
This is shown above, but you should add the custodian and balances of each account. Common types of accounts include: IRA, SEP IRA, Roth IRA, 401k, 403b, 457, defined benefit, and taxable.

Step #3: Break down each account by tax category
Make this simple by grouping accounts into 3 tax categories: tax deferred, tax free, and taxable. This is important because you may want to consider placing tax inefficient investment classes in tax deferred accounts.


Step #4: List all investment choices for each account
If you have an employer sponsored retirement plan, you may be restricted to certain mutual funds, but in other accounts you might be able to access almost any funds. For the latter, you’ll have to determine which specific funds to use. If you’ve got multiple funds within the same investment class, look at the internal expenses of each fund and rank them from low to high. Generally the lower cost funds tend to perform better.

Step #5: Match all investment choices with specific investment classes
Remember you’ve already created your asset allocation which should include the proportion of your portfolio you want in specific investment classes. Now you need to match each fund with its respective asset class.

Step #6: Fill it in
You’re now ready to allocate each specific fund you’ve chosen to specific accounts categorized by tax status and taking into account the fund choices within each account.

Step #7: Maintenance, maintenance, maintenance
You’ll probably realize from the previous step that much of what I told you conflicts with each other. For example let’s say you want 30% of your asset allocation to be in international stocks, but the accounts you want them to be in happen to offer very high cost funds. Or perhaps you just run out of room to place certain investment classes in certain tax categories. In those cases you’ll have to make a decision and may have to adjust your asset allocation altogether and go through this exercise again. On top of that you’ll have to consider future contributions into each account and factor in all of this again. Then, what if the investment choices change?


The bottom line is that you’ll have to do this on an ongoing basis to make sure you’ve got a cohesive investment plan.


Setu Mazumdar, MD, CFP® is board certified in EM and is the president of Physician Wealth Solutions Inc., a wealth management firm helping physicians with financial planning and investment management.

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