Analyzing Existing Holdings – Do They Fit the Plan?

In an ideal world, a client would begin working with an advisor with assets that are entirely in cash.   This would make it relatively easy to establish whatever investment accounts are recommended to create a portfolio designed to meet the client’s goals and objectives.

However, this is not an ideal world, and the hypothetical “all-cash scenario” is certainly unlikely.  Most often, people have done some investing and established several – or many – accounts of various types before working with a professional advisor.

The challenge, then, is to carefully analyze these holdings to determine if they should be part of a strategically designed portfolio.  To do this, the best motto is:  “back to the basics.”  In other words, establish or review your goals and objectives, see if they are realistic within the available timeframe, consider any restraints, such as taxes and your tax bracket, and look at your available resources.

Then comes analysis of your individual existing holdings, and asking yourself tough questions about each one.  Does a particular account or investment add value or move you closer to your eventual goal?  Does it fit suitably within your portfolio?   A common example is an investment that a client has inherited from parents.  Perhaps that investment worked well for the parents, but isn’t really a good investment for the client, given his or her differing circumstances, such as risk tolerance or time available.

We will compare an investment to existing benchmarks to see how it is doing, and we’ll review the asset allocation within the portfolio to see if it is diversified.

We’ll look in detail at various investments, such as stock holdings.  What is the cost basis of these shares?  How long have they been owned?  Can they be liquidated without penalty?  If not now, when?

If an employee retirement plan is part of the portfolio, we’ll want to fully understand any restrictions on those holdings.  And we’ll want to know how an existing holding might fit – or be modified to fit – the financial plan.

In summary, existing holdings are very good, but it takes thorough analysis and often some creative planning to keep everything focused on a client’s goals and objectives.