‘Portfolio brain.’ Ever heard of it?

We’re constantly faced with news about the markets. Getting caught up in that noise can lead you to focus too much on your portfolio. But don’t. When you catch “portfolio brain,” you may end up ignoring other critical aspects of your finances.

Your planner can help create safeguards for your financial plan by taking a comprehensive approach. Your plan may incorporate your taxes, your insurance, your cash reserves, estate planning and more because each plays a key role in helping you achieve your goals. With the new year upon us, it’s a good time to review your financial plan with your planner to help ensure you’re considering all the angles.

The below examples provided by some of our experts illustrate the many ways that parts of a financial plan can work together to help build and protect wealth.

Robert Bain, Director of Insurance

The right insurance strategies can protect your loved ones, but insurance strategies also can be a dynamic part of an overall financial plan.

One way I have seen this is when we “right-size” our clients’ life insurance, as sometimes people end up overpaying for the wrong insurance. Earlier this year, we identified a way a couple could save more than $25,000 a year after reviewing their insurance needs, and perhaps, invest that money in their retirement portfolio. Obviously, not everyone's situation is the same and savings can vary, but it can be as simple as replacing a whole life insurance policy with a term life insurance (term life is for a set period during one’s life while whole life coverage lasts a lifetime). Term life is less expensive and may make sense for those who are still working. 

Permanent life insurance (like whole life or universal life) can have its place. For example, if we know that a client faces an estate tax, they may be able to use permanent life insurance to help pay the taxes.

This would help prevent their heirs from having to sell assets of the estate to cover the tax liability. This is not typical given the high current federal estate tax threshold, but there are states with estate taxes.

Rich Lahijani, Director, Tax Advisory and Planning

Taxes touch so many different parts of our finances, so when we collaborate with a client’s tax preparer, we can help ensure the tax strategy works with the client’s overall financial plan.

Let’s take a composite of different clients: someone who is a small-business owner, but who also just bought a home and is interested in converting a portion of their SEP-IRA into a Roth IRA.

A Roth conversion: If the market had a lackluster year, maybe we can take advantage of that, as the associated taxes with a Roth conversion may be lower. We can also stagger the conversion, so it’s done with insight into estimated future income taxes based on their plan. 

Home purchase: Many may not be aware that some states offer tax exemptions that lower property taxes for qualifying homeowners. For example, Georgia and New York both offer these exemptions.

A small-business owner: Strategies also can be simple. A small-business owner may be able to push income from late December to January and buy needed office equipment before year-end. The former potentially decreases tax liability while the latter can accelerate tax deductions in the current year.

One or all of these can be considered for the same client because their plan integrates different aspects of their financial life. 

Paul Dau, Director, Financial Planning, CFP^®

As a planner, I see some clients can be excellent at building savings, to the point where their cash reserves may be too high. It’s important to recognize that some of us need the security of excess cash, so it’s balancing that with helping make sure that my client’s assets are working as hard as they can to drive wealth.

Frankly, there are innumerable ways to use one’s cash, so a cash reserve may be running too high because the client is understandably frozen by indecision. That’s where I come in.

We can look across their finances together and see where the extra cash can be used to strengthen their financial plan. 

Simply going to a high-yield CD may be a good place for the excess cash, but to get that high rate, they need to be comfortable with locking in the money for a year or even five years. The cash may have greater potential elsewhere.

If they don’t need this money in the short term, using it for an IRA may help accelerate their retirement target date. Or we may find that they’re facing a larger-than-expected tax liability that year, so depending on the size of the extra cash position, they could give to a charity and use the donation as a deduction. If they’re already retired, they may consider using their cash for strengthening their estate plan by funding a trust for their grandchildren. That’s just a start, of course. When the client sees their full financial picture, it’s always an opportunity to see their finances in new ways.

Erin Smith, Director, Estate Planning

Because estate planning ideally accounts for all of your assets, you can’t do effective estate planning without a comprehensive understanding of your finances, but it goes deeper than that.

All elements of your estate plan need to be coordinated with your financial plan.

This includes beneficiary designations and the proper asset titling; otherwise, you will have a lot of beautiful estate documents that won’t accomplish what they need to.

For example, we have seen estate plans of married couples that the couples said employed tax mitigation strategies to manage low estate tax exemptions in their state. 

However, because the estate plan was created without their being aware of their full financial picture, the couples hadn’t updated their beneficiary designations and asset titles, which would have prevented the estate tax strategy from working. Our own comprehensive view helped correct this and enabled them to have the tax-smart estate plan they needed.

By the same token, even if the client did all the right things when creating an estate plan and it’s been five years or so, it may be time to review the plan. Finances, net worth and family dynamics can change over time and that may affect their estate plan in ways that they may not be aware of.  

Whether it’s your taxes, insurance, cash reserves or any other aspect of your finances, consider whether there are areas of your plan beyond just your portfolio that deserve more of your focus. A well-thought-out, comprehensive plan helps provide peace of mind during uncertain periods that inevitably emerge.

And, if you think you’re getting a case of portfolio brain, reach out to your financial planner to discuss your plan. We’re here for you.