Tracking assets and securities helps portfolio management

Some investors find that when they need a list of their securities to undertake some portfolio management or tax planning, they have to go on a safari of sorts, fumbling through drawers, shoe boxes, safe-deposit boxes and so on. If not for the need to calculate income taxes each year, some investors might never review their holdings. One way around this all-too-human deficiency is to draw up and keep up to date a one-page summary of your finances. Here are some reasons to do so.

■ Seeing at a glance what you’ve got illuminates the strengths and weaknesses in your financial situation. This puts you in a better position to set priorities and to find a proper home for new funds as they come up for investment.

■ The summary helps you stay on top of record-keeping, and reminds you of important dates such as term deposits or bond maturities, or the change or expiration of conversion privileges.

■ The summary is a constant reminder of savings that may be available from tax planning.

■ The summary will help your executor when you die or your representative if you become incapacitated. Remember, if it takes you half a day to round up your documents and figure out what you own, it’ll take a lot longer for somebody unfamiliar with what you only jokingly refer to as your filing system.

Your one-page summary should show assets first, then liabilities. You’ll need six columns, though not all items will have an entry in each column. The six columns are quantity (face value, number of shares and so on), description, cost, current value, percentage of total portfolio value or assets, and yearly income (for liabilities, yearly costs or payments). Start by dividing your assets into three broad categories.

First, list assets you’re unlikely to sell and that don’t usually produce income. These include your residence, cottage, car, furniture, collectables, art and jewelry. In listing their values, be conservative. After all, a friend’s mother-in-law called his antiques ‘old junk’. You might want to figure out what it would cost to replace them, and then cut that figure by half.

Second, list ‘contingent assets’. These assets do or can produce income, but in most cases you’ll never sell. They include the cash equivalent or surrender value of pensions, annuities and life insurance.

Third, list your ‘working assets’ that you hold mainly for their ability to produce income or capital gains. Here include businesses, income-producing real estate, interest-paying securities, preferred shares and common stocks—more or less in that order.

After assets, summarize your liabilities, personal as well as business and investment. This will be a constant reminder to shuffle liabilities in order to reduce your interest costs and write off as much interest as possible as an investment or business outlay.

Married couples should have a joint one-page summary, unless they’re considering divorce or separation. If you can’t list all assets and liabilities individually, you may want to customize your one-page summary. For instance, you can group your interest-paying investments—Canada Savings Bonds, term deposits, corporate bonds and so on. If so, include notes on interest rates and on the nearest maturity.

A one-page summary makes asset and portfolio management much easier. But you need to review it regularly to profit from it. A once-a-year review is a bare minimum. Quarterly reviews may do for conservative investors, but monthly may be best for most of us. Finally, your one-page summary should indicate where you keep detailed records—tax returns, share certificates, deed, transactions slips and so on.

The Investment Reporter,
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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