No time like spring to clean up the books

Deborah Leahy

April, 2011

For many people, a weekend of vigorous house cleaning is a rite of spring. Spring can also be an excellent time to clean up your financial situation—with RRSP season and the filing of personal income taxes now behind you.

How to tidy up your financial life

1. Organize your financial records. If you find you always file your taxes at the last minute, now is the perfect time to organize your financial records because you’ve probably got them close at hand. It’s not just a matter of having your brokerage and RRSP statements in neat piles. Once you’ve got these documents together, you might see opportunities for consolidation.

For example, you might have RRSPs with different financial institutions. By moving them all to one provider, you could save some fees, reduce your paperwork, and find it simpler to manage your investments.

2. Assess your portfolio’s diversification. Over time, you may have built a sizable investment portfolio. But if it lacks diversification, you may be hindering your progress toward your goals. While diversification does not guarantee a profit or protect against a loss, it may be the best approach. So look for opportunities to ensure ample diversity with different types of securities, taking into account your risk tolerance and time horizon.

3. Review your “systematic” investing for maximum saving. Years ago, you might have started systematically moving money from your savings account into an investment.

But perhaps the circumstances of your life changed and you needed money for other purposes so you reduced or stopped making those investments. Scrutinize your situation and see whether you can get back on track with your savings through automatic investments. A systematic investment plan does not insure a profit, and does not protect against loss in declining markets, but is a great way to maintain your investing discipline.

4. Check your beneficiaries. Beneficiary designations on financial documents are extremely important because they may supersede even the instructions in your will.

Over time, your family situation may have changed through death, divorce, remarriage or the birth of children, so you should periodically review all your beneficiary designations, as well as any estate planning documents that you have, such as your will and powers of attorney.

5. Examine your insurance coverage. When you have a young family, you need a certain amount of life insurance coverage to provide for some major obligations—such as your mortgage, education for your kids, or perhaps some retirement funds for your spouse.

But when your children have grown, your mortgage is paid and your spouse has decades’ worth of retirement savings, your insurance needs may change. At the same time, you may find other uses for insurance. Take some time and review your insurance coverage with your financial adviser.

6. Be a wise snowbird. For people returning to Canada after wintering south of the border, you may want to review what you want to do with your U.S. dollars. Instead of converting all of it back to Canadian currency, one convenient option to consider is purchasing U.S. dollar bonds, which can provide income in U.S. dollars.

You might also want to ensure that you have an optimal savings account set up. People who have investments in U.S. and Canadian dollars may find that having a savings account in both currencies is a wise choice to handle continuing accrual from such sources as stock dividends and bond interest. While away, their money is working hard for them. When they come back, they have easy access to the funds, with everything consolidated to keep things simple.

Deborah Leahy is an Investment Advisor with Edward Jones.