Take a deeper look at those financial statements
As a function of my work, I often get the opportunity to review client statements from a wide variety of financial institutions. Adorned with mottos, logos and graphic design, a pile of statements sometimes invokes a mosaic of postcards from mysterious and foreign lands. To make matters worse, jargon and lingo can take the feel of a foreign language—captioning the indiscernible chart or graphic at hand. The temptation is to glance over the document, remark “that’s nice” and move on. But digging a bit deeper can provide substantial meaning. Here’s what I encourage my clients to look out for:
It isn’t uncommon to see “Rate of Return” in boldface at the top of an account statement. Without context, though, such a figure holds little meaning for most investors. First, is the performance quoted gross of (before) account fees or net of (after) fees? Next, is the performance quoted on its own, or is there benchmark data provided? An index benchmark of comparable asset classes—or a blend thereof—can highlight market outperformance, underperformance or parity. Finally, does the account performance put you any closer to your financial goals? Performance is important, but without the appropriate context, it doesn’t tell you a whole lot.
Take some time to review account transactions. If you manage your own investments, keep an eye out for rogue or unknown transactions. If you work with a professional, familiarize yourself with the actions taken on your behalf. This can help you better understand the strategy employed on your account and give you the chance to plan for future months. Staying on top of things will also help you more easily identify irregular or unauthorized transactions.
The mix of stocks, bonds and cash in your account is a key component of an investment strategy. Asset allocation is often reported in a colorful or patterned pie chart on your statement. Is this mix still appropriate for you, for your time horizon, risk tolerance and goals? Have market movements or cash transactions changed your allocation substantially?
I’m sometimes surprised by the number of clients who don’t know where their account is held or who is responsible for it. But it makes sense. Financial institutions are bought, sold, merged or name-changed with relative frequency. Advisers move on to greener pastures and accounts get reassigned. Before long, account holders can fall out of touch with the institution or professional who oversees their account. (Note: a good adviser wouldn’t let this happen, but that’s a different column altogether!) Take a moment to inventory your accounts, the institutions where they are held and the relevant contact people for service or investment questions.
Instead of missives from a foreign land or souvenirs from abroad, consider the account statement a valuable artifact in the oversight of your assets. Spending a few moments to review the essential information can be informative and empowering.
Scott Mazuzan is a certified financial planner for F.L. Putnam Investment Management Company, an independent firm that provides investment management and financial planning services. Follow his blog at www.flputnam.com/blog.